for the reasons discussed above. Therefore, the Commission will,
instead, use the book cost of all of a company's assets to measure the
value of mergers or consolidations of affiliated companies.\92\
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    \92\ Book cost, as used here, refers to original book cost.
---------------------------------------------------------------------------

6. Compliance With Section 203
    127. Given the increased significance of valuation of a transaction
under amended section 203, the Commission solicited comments on whether
our existing recordkeeping and reporting requirements, outside the
section 203 context, will allow us and the public to effectively
monitor jurisdictional entities' determinations of when a section 203
application is required. For example, the Commission asked ``do FERC
Form 1s or Order No. 652 \93\ market-based rate change in status
reports provide sufficient information to monitor compliance with
section 203?'' \94\
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    \93\ Reporting Requirement for Changes in Status for Public
Utilities with Market-Based Rate Authority, Order No. 652, 70 FR
8,253 (Feb. 18, 2005), FERC Stats. & Regs. ] 31,175, order on reh'g,
111 FERC ] 61,413 (2005).
    \94\ NOPR at P 35.
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a. Comments
    128. Many commenters believe that the Commission's existing record-
keeping and reporting requirements will be enough.\95\ Some note that
parties often seek section 203 authorization out of an abundance of
caution, whenever there is a reasonable possibility that section 203
approval is legally required, in order to remove regulatory uncertainty
from a transaction, as an entire transaction can be placed at risk if
required regulatory approvals are not obtained.
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    \95\ E.g., Kentucky Commission, NARUC, Oklahoma Commission,
Ameren, Constellation, EEI, FirstEnergy, Progress Energy, and
Southern Companies. Some commenters argue that the Commission's
existing record-keeping and reporting requirements, including the
information supplied under the FERC Form 1, Order No. 652, and
Change in Status reports, are more than adequate.
---------------------------------------------------------------------------

    129. However, some commenters suggest that the Commission's current
record-keeping and reporting requirements are the minimum necessary for
section 203 purposes and should not be reduced. NARUC states that our
existing record-keeping and reporting requirements are adequate as they
pertain to mergers. However, NARUC suggests that Commission review of
merger applications could be enhanced by requiring the applicant to
file pro forma consolidated financial reports showing the projected
financial position of the merged entity after the proposed
transaction.\96\
---------------------------------------------------------------------------

    \96\ NARUC Comments at 7-8.
---------------------------------------------------------------------------

    130. APPA/NRECA assert that the Commission's existing record-
keeping and reporting requirements do not provide sufficient
information on fair market value for the Commission to ensure that
companies are not improperly transacting without filing for approval.
They state that the Commission should update our reporting
requirements, including requiring applicants to adhere to GAAP
principles for valuation determinations and to justify exemption from
section 203 under both a cost and market value method of valuation. As
for reporting requirements that might enable the Commission and the
public to police compliance with section 203, APPA/NRECA suggest that
the Commission should consider requiring public utilities to file
annual reports of all transactions with a value exceeding, for example,
$5 million, to enable the Commission to enforce the $10 million
standard.
b. Commission Determination
    131. Most commenters state that the Commission's existing record-
keeping and reporting requirements are adequate. We agree and we will
not adopt any additional compliance requirements at this time. We
intend to keep our regulations as straightforward as possible so as not
to increase regulatory burden on the industry while at the same time
adequately monitoring jurisdictional entities' determinations of when
section 203 applies to their transaction. The Commission agrees that
parties have often sought section 203 authorization out of an abundance
of caution because of a reasonable possibility that section 203
approval was legally required. In this way, parties have sought to
remove regulatory uncertainty from a transaction, as an entire
transaction can be placed at risk if required regulatory approvals are
not obtained. This incentive is even greater now that EPAct 2005 has
authorized civil penalties for violating statutory requirements.\97\
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    \97\ See 16 U.S.C. 825o-1 (2000), as amended by EPAct 2005
1284(e).
---------------------------------------------------------------------------

    132. Although the majority of commenters assert that the current
requirements are adequate, a few suggest that these requirements should
be considered the minimum necessary for section 203 purposes and should
not be reduced. We agree, and note that the NOPR did not propose to
reduce our current requirements. We merely asked whether our existing
record keeping and reporting requirements, outside the section 203
context, provide an adequate basis for monitoring jurisdictional
entities' determinations of when a section 203 application is required.
We believe that those requirements, as well as other publicly available
information (e.g., financial statements filed with the SEC), will give
interested entities enough information to allow them to monitor
compliance with section 203. For example, under SEC disclosure
requirements, publicly traded entities must disclose material
transactions such as mergers or asset acquisitions. Most of these
transactions will easily exceed the $10 million threshold, so the
public will be on notice of transactions that likely should be
submitted to the Commission for approval under section 203. We will
therefore not adopt the suggestions of NARUC and APPA/NRECA that we
impose new and burdensome disclosure requirements for purposes of
monitoring compliance with section 203.
7. Cash Management Arrangements, Intra-Holding Company System
Financing, Securities Under Amended Section 203, and Blanket
Authorizations
    133. The NOPR did not specifically address these issues, but we
received comments on them. We note that section 203(a)(2) adds the
entirely new requirement that no holding company in a holding company
system that includes a transmitting utility or an electric utility
shall purchase, acquire, or take any security with a value in excess of
$10 million of, or, by any means whatsoever, directly or indirectly,
merge or consolidate with, a transmitting utility, an electric utility
company, or a holding company in a holding company system that includes
a transmitting

utility, or an electric utility company, with a value in excess of $10
million without Commission authorization.
a. Comments
    134. Many commenters, including EEI, Duke/Cinergy, and Entergy,
request that the Commission clarify that it will continue to interpret
section 203 to not apply to cash management \98\ and other financing
arrangements routinely used in utility holding company systems. Thus,
they request that the Commission continue to distinguish between the
acquisition of voting securities and other instruments that confer
control, which is subject to review under section 203, and the
acquisition of loans and other financial instruments that do not confer
control. They state that the issuance of these should remain subject to
section 204 of the FPA \99\ and relevant state law, but should not
require section 203 approval. EEI, Duke/Cinergy, and Entergy also
explain that cash management rules are already in place to monitor any
potential cross-subsidization concerns for these types of financial
arrangements. Furthermore, they assert that requiring prior approval
under section 203 for cash management arrangements would impair the
ability of holding companies and their public utility subsidiaries to
manage their short-term financing needs efficiently. Applying section
203 to all intra-system financings would be contrary to Congress'
intent and would create significant burdens for the Commission and
utilities alike. Alternatively, should the Commission determine that
section 203 applies to cash management programs, they request that the
Commission allow companies to seek pre-approval (similar to the pre-
approval process and reporting requirements adopted for cash management
agreements) or blanket authorization.
---------------------------------------------------------------------------

    \98\ While there are several different types of cash management
programs, a cash management program generally involves pooling the
cash resources of several affiliated companies into a ``money
pool.'' Affiliates can then borrow against the funds in the pool,
often at below market rates. Additionally, the parent company is
often able to achieve a higher rate of return on its money pool
investments than any single affiliate could on its own. For a more
detailed discussion of cash management programs. See Regulation of
Cash Management Practices, Order No. 634, 68 FR 40,500 (July 8,
2003), III FERC Stats. & Regs. ] 31,145 (June 26, 2003), Order No.
634-A, 68 FR 61,993 (Oct. 31, 2003), FERC Stats. & Regs. ] 31,152
(Oct. 23, 2003) (Cash Management Rule).
    \99\ 16 U.S.C. 824c (2000).
---------------------------------------------------------------------------

    135. MidAmerican Energy Holdings Company (MidAmerican) also urges
the Commission to grant a blanket authorization for intra-holding
company system financings, contributions, or equity infusions in excess
of $10 million undertaken by an upper tier company to fund a lower tier
holding company, intermediate holding company, or public utility
company within the same holding company system. It states that the
purpose of these financial transactions is to fund the capital and
operating requirements of the lower tier entities and, thus, that these
transactions do not raise any cross-subsidization issues. MidAmerican
explains that the utility company would still need to obtain Commission
authorization under section 204 for the issuance of its own securities.
    136. Further, MidAmerican urges the Commission to grant another
blanket authorization for the infusion of capital by a passive investor
through the acquisition of holding company or public utility company
securities, including debt and equity securities, subject to an
aggregate limitation that the passive investor acquire less than ten
percent of voting equity securities. It explains that one of the main
objectives of repealing PUHCA 1935 was to encourage additional
investment in the energy infrastructure by non-traditional, or passive
investors (who make significant capital infusions in the utility
industry either as lenders or equity investors), because existing
investors are not providing sufficient money. There is no need for
passive investors to follow the traditional section 203 approval
process. It states that passive investments will not have any adverse
effects on competition, rates, or regulation, and will not result in
cross-subsidization. MidAmerican proposes that, to ensure that a
passive investor will not be able to exercise control through ownership
of a voting equity security, the passive investor be limited to an
ownership interest of less than ten percent of voting securities.
Further, MidAmerican states that when an investor acquires the debt or
equity securities of an entity that has a de minimis interest in an
electric utility company, we should grant the blanket authorization.
    137. MidAmerican suggests that the Commission require those who
receive these types of blanket authorizations to report their
transactions within 45 days of the closing of the transactions.
    138. Many commenters, including EPSA and Independent Sellers,
request that the Commission clarify that the term ``securities,'' as
used in amended section 203(a), means only ``voting securities,'' as
that term is defined in section 1262(17) of PUHCA 2005, and does not
apply, for example, to debt or other nonvoting securities.
Alternatively, if the Commission is unable or unwilling to so clarify,
the Commission should request a conforming amendment from Congress.
    139. Transmission Agency of Northern California (TANC) urges the
Commission to modify its Cash Management Rule to apply to public
utility holding companies, which would add an additional layer of
protection to utilities and their customers.
b. Commission Determination
    140. As noted above, amended section 203(a)(2) expands the
Commission's authority to include mergers, acquisitions, and purchases
of securities \100\ of over $10 million involving holding companies
within certain holding company systems. A major part of the
Commission's past practice in reviewing section 203 transactions has
been to determine whether a particular merger or acquisition results in
a single entity having control over transmission or generation
resources that would allow it exercise market power. This would also be
a concern under the new section 203(a)(2) provision.
---------------------------------------------------------------------------

    \100\ The term ``security'' is defined in FPA section 3(16) as
``any note, stock, treasury stock, bond, debenture, or other
evidence of indebtedness of a corporation * * *.''
---------------------------------------------------------------------------

    141. However, as several commenters suggest, there are several
classes of transactions covered by amended section 203(a)(2) that will
not harm competition or captive customers. These include: (1) Routine
cash management transactions and intra-holding company system financing
transactions; (2) acquisition of non-voting securities (in any amount);
\101\ and (3) acquisition of voting securities that would give the
acquiring entity not more than 9.9 percent ownership of the outstanding
voting securities. For these transactions, the Commission finds that it
is consistent with the public interest to issue a blanket authorization
in this Final Rule, for the reasons discussed below.
---------------------------------------------------------------------------

    \101\ We note, however, that it is possible, in some
circumstances, for non-voting securities to convey sufficient
``veto'' rights over management actions as to convey ``control''
that triggers section 203. The Commission has addressed similar
issues for purposes of evaluating independence of entities that ask
for RTO status, and the SEC considered similar issues through its
``no action'' letter process in applying PUHCA 1935. We anticipate
that our treatment of such issues under amended section 203 will
generally be consistent with these precedents. If uncertainty exists
as to whether significant veto rights could convey control, entities
should seek a ruling from the Commission to determine whether
section 203 approval is required.

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

i. Cash Management Programs and Intra-Holding Company Financing
Arrangements
    142. As several commenters note, cash management programs, money
pools, and other intra-holding company financing arrangements are a
routine and important tool used by many large companies to lower the
cost of capital for their regulated subsidiaries and to improve the
rate of return the holding company and its subsidiaries can get on
their money.\102\ The Commission does not intend to make it more
difficult for companies to take advantage of these types of
transactions. Since the companies participating in a cash management-
type agreement are already affiliated, allowing the transfer of funds
between such companies does not generally present competitive problems.
Thus, we find that it is consistent with the public interest to grant a
blanket authorization to allow holding companies and their subsidiaries
to take part in intra-system cash management-type programs, subject to
the discussion below.
---------------------------------------------------------------------------

    \102\ See, e.g., EEI Comments at 27-31.
---------------------------------------------------------------------------

    143. TANC suggests that the Commission modify its Cash Management
Rule to cover holding companies themselves. Currently, the Cash
Management Rule only covers the cash management practices of a holding
company's public utility subsidiaries.\103\ We disagree with TANC that
additional generic cash management rules governing holding companies
are necessary at this time to safeguard consumers. The focus of amended
section 203 is partly to prevent inappropriate cross-subsidization, or
encumbrances or pledges of utility assets by public utility
subsidiaries. Applicants must adopt sufficient safeguards, including
any necessary cash management controls (such as restrictions on
upstream transfers of funds, ring fencing, etc.), to prevent any cross-
subsidization between holding companies and their new subsidiaries
prior to receiving section 203 approval. Such safeguards ensure that
consumers are protected, while permitting companies the flexibility to
competitively manage their cost of capital via a cash management
program. On balance, the Commission believes that the flexibility
provided by this approach, combined with our existing cash management
policies,\104\ is superior to the one-size-fits-all approach advocated
by TANC.
---------------------------------------------------------------------------

    \103\ See Cash Management Rule at P 29.
    \104\ We also note that under our existing Cash Management Rule,
changes to existing or new cash management agreements (including
money pool arrangements and other internal corporate financing
arrangements) must be filed with the Commission.
---------------------------------------------------------------------------

ii. Purchases of Non-Voting Securities by a Qualifying Holding Company
    144. We agree with the majority of commenters that there is no need
for case-by-case examination of the purchase by a holding company of
non-voting securities of a public utility or of another holding company
under amended section 203. The purchase of such securities generally
does not convey control and hence does not grant the purchasing holding
company additional market power, harm competitive markets, or otherwise
disadvantage captive customers.\105\ This is consistent with the intent
of Congress that EPAct 2005 increase outside investment in the utility
sector while protecting customers.\106\ As MidAmerican notes, the
issuance of securities by a jurisdictional company is also governed by
section 204 of the FPA. Thus, for the purposes of amended section 203,
we find that it is consistent with the public interest to grant a
blanket authorization for the purchase by a holding company of any
amount of non-voting securities of a public utility or of another
holding company. We will grant this blanket authorization and will not
impose any type of filing requirement with respect to such
transactions.
---------------------------------------------------------------------------

    \105\ See Cash Management Rule at P 29 (discussing exception for
non-voting interests that convey significant veto rights).
    \106\ See, e.g., Senate Floor Statement by Senators Domenici (R-
NM), H.R. 6, Energy Policy Act of 2005, 151 Cong. Rec. S9256 (July
28, 2005) (stating that ``this should bring much more capital
investment into the utility companies that make up this powerful
institution, this entity called the grid of the United States.'').
---------------------------------------------------------------------------

iii. Purchases of Voting Securities Amounting to 9.9 Percent or Less of
Outstanding Voting Securities
    145. As commenters note, a number of investors would like to invest
in the utility sector, but have been prevented from doing so by the
fear that they would become subject to regulation by the SEC as well as
this Commission. To remedy this problem, a number of commenters suggest
giving a blanket section 203 approval to institutional investors within
holding company systems purchasing less than 10 percent of the
outstanding voting securities. Commenters note that the SEC has
traditionally given blanket approval to a holding company in a holding
company system purchasing up to 9.9 percent of outstanding voting
securities of a public utility or a holding company covered by the
statute. We agree that this approach makes sense and that it is
consistent with the public interest and Congressional intent in
repealing the restrictions of PUHCA 1935 and encouraging incentives for
additional investment. We will, however, condition the blanket
authorization by requiring the purchaser of such securities to provide
the Commission, not more than 45 days after the purchase, with the same
information on the same basis that the holding company now provides to
the SEC.\107\ We will issue notices of these filings for informational
purposes only.
---------------------------------------------------------------------------

    \107\ Accordingly, the Commission directs that the purchaser of
such securities file with the Commission copies of SEC schedules
13D, 13G, and 13F. SEC schedule 13D is required to be filed by any
entity acquiring beneficial ownership of more than 5 percent of a
class of a company's securities. The schedule 13D filing requires,
among other things, a statement of the purpose(s) of the acquisition
of the securities of the issuer and a description of any plans or
proposals the reporting person may have that relate to or would
result in the acquisition of additional securities of the issuer;
any extraordinary corporate transactions, such as a merger,
reorganization or liquidation of the issuer or its affiliates; and
any changes in the board of directors or management of the issuer.
Schedule 13G is the same form, but is used when the person or entity
is making the purchase for investment only. Institutional investment
managers who exercise investment discretion over $100 million or
more must report their holdings on SEC schedule 13F. We note that
these schedules required for a grant of blanket authorization under
section 203(a)(2) should impose only a de minimis burden on the
holding company, since we are requiring merely the same information
that is filed with the SEC. Should the SEC change its reporting
requirements, this information must continue to be filed with the
Commission.
---------------------------------------------------------------------------

8. Section 33.2(j)--General Information Requirements Regarding Cross-
Subsidization
    146. In the NOPR, the Commission proposed that new section 33.2(j)
would implement section 203(a)(4) by requiring applicants to explain
how they are providing assurance that the proposed transaction will not
result in a cross-subsidization of a non-utility associate company or a
pledge or encumbrance of utility assets for the benefit of an associate
company. We proposed to require appropriate evidentiary support for
that explanation. We proposed that if no such assurance can be
provided, applicants must explain how such cross-subsidization, pledge,
or encumbrance will be consistent with the public interest.\108\ This
explanation would be Exhibit M to the applicant's section 203
application. The Commission sought comment on what evidence parties
should be required to submit to support any explanation offered under
this subsection.
---------------------------------------------------------------------------

    \108\ NOPR at P 45.
---------------------------------------------------------------------------

    147. The Commission noted that it has sought to guard against
potential

cross-subsidization and affiliate abuse when it reviews applications
for cost-based or market-based rate authority under section 205 of the
FPA \109\ or dispositions of jurisdictional facilities under section
203 involving public utilities (or their affiliates) with captive
customers.\110\ We also noted that the Commission has cash management
rules to monitor proprietary capital ratios and money lending or other
financial arrangements that can harm regulated companies.\111\ We
stated that our primary focus has been on preventing a transfer of
benefits from a traditional public utility's captive customers to
shareholders of the public utility's holding company due to an intra-
system transaction that involves power or energy, generation
facilities, or non-power goods and services. Thus, in light of the
Congress' clear directive in EPAct 2005 that the Commission make
findings regarding cross-subsidization and the pledge or encumbrance of
utility assets in a section 203 order, we sought comments on what
additional safeguards or conditions may need to be placed on section
203 transactions. Specifically, the Commission solicited comments on
the adequacy of its present policies preventing affiliate abuse and
cross-subsidization, and whether conditions such as those imposed by
state commissions may need to be imposed on section 203 transactions.
The Commission also sought comment on whether additional conditions
should be placed on section 203 approvals to ensure that there is no
pledge or encumbrance that harms utility customers.
---------------------------------------------------------------------------

    \109\ 16 U.S.C. 824d (2000).
    \110\ See, e.g., Sierra Pacific, 95 FERC ] 61,193; Boston Edison
Co., 80 FERC ] 61,274 (1997).
    \111\ NOPR at P 46.
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a. Comments
    148. Many commenters generally support the Commission's proposal
but recommend additional conditions or safeguards. They agree that the
Commission should impose specific conditions or safeguards to protect
against unfair competitive practices, cross-subsidization, and
affiliate abuse.\112\ Some recommend that the Commission consider such
protections on a case-by-case basis in consultation with affected state
commissions. Proposed conditions include, for example: Utility company
subsidiaries shall not loan any funds (or advance any credit or
indemnity) to the holding company without appropriate regulatory
approvals; a utility shall not incur any additional indebtedness, issue
any additional securities, or pledge any assets to finance any part of
a merger of holding companies without prior regulatory approvals; all
debt at the holding company level shall be non-recourse to the utility;
and the Commission should develop a process for periodic audits of
inter-company transactions to be conducted in appropriate instances, as
well as procedures for compliance monitoring, investigation, and
complaints of cross-subsidization and affiliate abuse.
---------------------------------------------------------------------------

    \112\ E.g., NARUC, New Jersey Board, Ohio Commission, Oklahoma
Commission, Indiana Commission, APPA/NRECA, TANC, TAPSG, NASUCA, and
UWUA.
---------------------------------------------------------------------------

    149. The Oklahoma Corporation Commission (Oklahoma Commission)
proposes that applicants provide: A report of the nature of affiliates'
operations; description of the business intended to be done by
subsidiaries; and an explanation and detailed rationale of any plans to
make any material change in investment policy, business, corporate
structure, or management.
    150. New Jersey Board states that it is not clear that proposed
section 33.2(j) requires applicants to provide evidentiary support when
claiming that a cross-subsidization, pledge, or encumbrance is
consistent with the public interest. Therefore, it proposes that the
text be revised to state ``An explanation, with appropriate evidentiary
support for such explanation (to be identified as Exhibit M to this
application):''.\113\
---------------------------------------------------------------------------

    \113\ New Jersey Board Comments at 6 (emphasis in original).
---------------------------------------------------------------------------

    151. To mitigate cross-subsidization risks to ratepayers, other
commenters propose structural conditions on mergers of entities that
include both public utility and non-utility businesses, as the facts
require. This could include the separation of public utility business
within companies that also engage in non-utility business and the
separation of a public utility's books and records from those of non-
utility affiliates.
    152. Finally, Southern Companies request that when a public utility
predominately serves customers at retail but has some jurisdictional
facilities, the Commission accept as sufficient a showing that the
public utility applicant is subject to general supervision by a state
commission that has authority to review the transaction, and that such
state commission approval is predicated upon a finding that the
transaction will not impair the performance of public service
obligations or result in cross-subsidy burdening utility assets or
service.
    153. Other commenters generally state that there is no need to
impose additional conditions or a new evidentiary requirement to ensure
that transactions are consistent with the public interest.\114\ They
assert that the Commission already has in ways to guard against cross-
subsidization or pledging or encumbering of utility assets, including:
(1) Cash management rules; (2) code of conduct restrictions; (3) prior
approval for certain power transactions; (4) access to, and auditing
of, books and records; (5) expanded jurisdiction under EPAct 2005 with
regard to books, accounts, and records; (6) standards of conduct; and
(7) the application of Edgar standards to ensure that the sale price is
not higher than would have been paid to a non-affiliate.
---------------------------------------------------------------------------

    \114\ E.g., Duke/Cinergy, Entergy, EEI, AEP, Ameren,
FirstEnergy, Progress Energy, International Transmission, National
Grid, and Scottish Power.
---------------------------------------------------------------------------

    154. Duke/Cinergy, EEI, PNM, and Entergy assert that the Commission
should allow applicants to avoid a detailed examination of cross-
subsidization and encumbrance concerns by making four verifications on
a case-by-case basis that address those issues. These verifications
would enable the Commission to quickly determine whether a transaction
is consistent with the public interest. The verifications would be that
the transaction results in: (1) No transfers of facilities between a
traditional utility associate company with wholesale or retail
customers served under cost-based rates and an associate company; (2)
no new issuance of securities by traditional utility associate
companies with wholesale or retail customers served under cost-based
rates for the benefit of an associate company; (3) no new pledge or
encumbrance 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; (4) no new affiliate contracts
between non-utility associate companies and traditional utility
associate companies with wholesale or retail customers served under
cost-based rates, other than system allocation agreements subject to
review under EPAct 2005 section 1275(b).\115\ In cases where an
applicant is unable to make one or more of the accepted verifications,
these commenters state that the applicant should bear the burden of
submitting sufficient information in Exhibit M to demonstrate that
there is no cross-subsidization issue or, if there is, that the
transaction is consistent with the public interest.
---------------------------------------------------------------------------

    \115\ See, e.g., EEI Comments at 20-21; Entergy Comments at 8;
Duke/Cinergy Comments at 7.

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

    155. Some commenters generally oppose imposing additional
conditions or safeguards beyond or that would conflict with those
imposed by state commissions. Many commenters believe that the
Commission's current policies are more than adequate to address state
commission conditions and that the Commission already imposes most of
these conditions directly.\116\
---------------------------------------------------------------------------

    \116\ E.g., Duke/Cinergy, EEI, Entergy, AEP, Ameren, Progress
Energy, PNM, FirstEnergy, International Transmission, National Grid,
and Scottish Power (citing NOPR at P 52.).
---------------------------------------------------------------------------

    156. Oklahoma Commission suggests that the Commission allow state
commissions to continue to exercise their autonomous authority in
addressing possible affiliate abuse and cross-subsidization. Kentucky
Commission states that any additional conditions imposed by the
Commission should complement, not nullify or preempt, those imposed by
state commissions.
    157. International Transmission states that because independent
transmission companies, by definition, are not affiliated with market
participants, concerns regarding transmission-specific cross-
subsidization that distort energy markets are minimized. National Grid
states that the Commission should impose a merger condition only when
it finds a proposed transaction, taken as a whole, is inconsistent with
the public interest. Scottish Power states that the Commission should
allow applicants to provide their own ways to demonstrate that there is
no potential for cross-subsidization, on a case-by-case basis.
    158. FirstEnergy contends that a requirement that applications
demonstrate that each company within a holding company system is
unaffected by cross-subsidization would inundate the Commission with
information that has no real import. If the Commission requires such an
evidentiary showing, it must clearly define the types of evidentiary
support that would be necessary and provide guidance on the types of
activities that typically would result in a pledge or encumbrance and
those that will be consistent with the public interest. FirstEnergy
states that conditions should be placed on section 203 approvals only
when the Commission finds that a pledge or encumbrance is not
consistent with the public interest.
    159. Finally, Independent Sellers request that the Commission adopt
a rebuttable presumption that no opportunity for cross-subsidization
exists when a transaction involves only entities that are not
affiliated with traditional public utilities with captive ratepayers.
    160. In addition, Kentucky Commission, APPA/NRECA, and TAPSG
comment that the Commission should require as part of a section 203
application the disclosure of all existing and/or future pledges and
future encumbrances of utility assets. They state that applicants
should have to explain how these existing pledges or encumbrances do
not harm utility customers. However, International Transmission and
FirstEnergy do not believe that all existing pledges and encumbrances
should be disclosed in section 203 applications because this would be
inconsistent with section 33.11(b)(3) of the regulations, which assumes
that corporate reorganizations can occur that do not present cross-
subsidization issues.
    161. Missouri Commission states that the Commission should require,
as a condition of approving mergers, the application of a ``lower of''
or ``higher of'' ``cost or market value'' standard. TANC states that
requiring associate and affiliated companies to file cost allocation
agreements with the Commission will help prevent excessive costs for
non-power goods and services from being charged to utility companies
and their customers. With regard to cost allocations for non-power
goods and services, TANC asserts that the dual approach of a ``lower of
cost or market'' standard has the advantage of ensuring that utilities
and customers will not be harmed by an affiliate company relationship,
regardless of whether market price exceeds costs for the non-power
goods or services, or vice versa.
    162. AEP encourages the Commission to retain the ``at cost''
standard for intra-system non-power goods and services transactions due
to the added cost, burden, and inconsistencies that would be created
otherwise. It explains that the expense and effort of implementing a
``lower of cost or market'' standard to the wide range of routine
service company administrative and professional services would be
immense, would result in lost efficiencies and, ultimately, would
produce higher rates for regulated ratepayers. AEP states that the at-
cost standard is a fair, verifiable, and workable.\117\
---------------------------------------------------------------------------

    \117\ AEP Comments at 6-7.
---------------------------------------------------------------------------

    163. National Grid states that the Commission should continue to
allow the use of the SEC's ``at no more than cost'' standard for
pricing of intra-company transactions involving service companies. It
explains that such companies were created to allow efficiently
centralized support services for utility and non-utility associate
companies within a holding company; therefore, a pricing system based
on market prices would not be appropriate.
b. Commission Determination
    164. The Commission will adopt, with the modification explained
below, our proposal to require section 203 applicants to include an
explanation of either: (1) How they are providing assurances that the
proposed transaction will not result in cross-subsidization or improper
pledges or encumbrances of utility assets; or (2) if such results would
occur, how those results are consistent with the public interest. We
believe that this approach meets Congress' concern regarding cross-
subsidization in section 203 transactions. As we explained in the NOPR,
the Commission has previously adopted a number of policies to address
affiliate abuse and cross-subsidization activities as it carries out
its section 203 and 205 responsibilities. Amended section 203, however,
clearly shows that Congress intended that cross-subsidization and
related concerns should be a focal point of the Commission's section
203 analysis.
    165. We also agree with commenters 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. We note that commenters who generally support the Commission's
proposal, as well as some who generally do not support the proposal,
advocate a case-by-case approach. Commenters suggest many valid
conditions that applicants might propose or that the Commission might
impose under revised FPA section 203(a)(4). However, many of these
conditions may not be appropriate to every section 203 transaction.
    166. In our Merger Policy Statement, the Commission explained that,
in determining whether a merger is consistent with the public interest,
one of the factors we consider is the effect the proposed merger will
have on rates. The Commission's main objective in applying this factor
is to protect captive customers who are served under cost-based rates
that could be adversely affected by a section 203 transaction.\118\

The new provision in amended section 203(a)(4) concerning cross-
subsidization is rooted in similar concerns. In our Merger Policy
Statement, we held that an applicant that wishes to avoid a hearing on
rate issues should submit a commitment that adequately protects captive
customers, such as a hold harmless commitment or an open season. Also,
as part of our policy authorizing market-based rates for traditional
public utilities or their affiliates, we have required that these
utilities adopt a code of conduct that addresses both power and non-
power transactions between them.\119\ We believe that these types of
commitments also can, in appropriate circumstances, address concerns
regarding the potential that a merger may permit cross-subsidization.
We will therefore require applicants to offer protections to their
captive customers that address the potential for cross-subsidization.
We also note that, in addition to any such commitments, we have
continuing jurisdiction over the rates of public utilities under
section 205 by which to further protect captive customers.
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    \118\ Customers charged under market-based rates escape the
potentially deleterious effects of cross-subsidization, or pledge or
encumbrance of utility assets, because the prices are constrained by
competition, regardless of the seller's costs. In contrast, captive
customers (who pay cost-based rates) require protection. See, e.g.,
Alpena Power Generation, L.L.C., 110 FERC ] 61,199, at P 17 (2005)
(finding affiliate abuse concerns were addressed with respect to
market-based rate authority because, among other factors, there were
no captive customers); Pinnacle West Capital Corp., 95 FERC ]
61,300, at 62,024 (2001) (``The focus of the Commission's affiliate
abuse concerns in cases involving sales between affiliates at
market-based rates thus is protection of captive customers.'');
Connectiv Energy Supply, Inc., 91 FERC ] 61,076, at 61,268 (2000)
(``As the Commission has explained in previous cases, there is a
concern whenever a public utility can transact with an affiliated
power marketer in such a way as to transfer benefits from a power
sale from captive ratepayers to its shareholders.''); The Detroit
Edison Co., 84 FERC ] 61,197 (1998) (the Commission places no
restrictions on power marketer transactions with affiliates that do
not have captive customers).
    \119\ NOPR at P 48 and 49.
---------------------------------------------------------------------------

    167. In sum, the concern about cross-subsidization is principally a
concern over the effect of a transaction on rates. Accordingly,
applicants proposing transactions under section 203 should proffer
ratepayer protection mechanisms to assure that captive customers are
protected from the effects of cross-subsidization. The applicant bears
the burden of proof to demonstrate that customers will be
protected.\120\ Applicants should attempt to resolve the matter with
customers before filing. Among the types of protection mechanisms that
could be proposed by applicants 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; or 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.\121\ The Commission will address the
adequacy of the proposed mechanisms on a case-by-case basis.
Furthermore, we agree that any additional conditions imposed by the
Commission would complement, not nullify, those imposed by state
commissions.
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    \120\ See Central Vermont Pub. Serv. Corp., 39 FERC ] 61,295, at
61,960 (1987) (stating that in cases where the Commission finds
sufficient potential for abuse, the Commission may disapprove the
transaction or place appropriate conditions on it).
    \121\ These protection mechanisms are offered only as examples.
Whether these types of protection mechanisms are appropriate in a
particular case will depend on the circumstances and the details of
the transaction in question. See, e.g., Merger Policy Statement at
30,121-24.
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    168. What constitutes adequate ratepayer protection will depend on
the particular circumstances of the transaction. Should parties be
unable to reach an agreement on ratepayer protection, the Commission
may still be able to approve the transaction on the basis of the
parties' filings if we determine that the proposal protects ratepayers
from harm, or after imposing conditions specific to the particular
circumstances.
    169. We also agree with commenters that certain verifications in an
application under amended section 203 could streamline the approval
process by avoiding a detailed examination of cross-subsidization and
encumbrance concerns. 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.
Accordingly, along with any protection mechanisms as discussed above,
we may accept on a case-by-case basis, in lieu of or in addition to any
other explanation, the following four verifications. The application
may verify 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; (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.
    170. We also agree with New Jersey Board that proposed section
33.2(j) does not clearly require appropriate evidentiary support for
the explanation in Exhibit M. We will therefore revise the text to
read: ``An explanation, with appropriate evidentiary support for such
explanation (to be identified as Exhibit M to this application): * *
*'' Further, the Commission will monitor and periodically audit, where
appropriate, to ensure that applicants abide by their commitments in
Exhibit M and any requirements contained in Commission orders.
    171. With regard to comments on the ``at cost'' standard versus the
``market'' standard for transactions involving non-power goods and
services, we note that the Commission addressed this issue in the PUHCA
2005 rulemaking.\122\
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    \122\ PUHCA 2005 Final Rule at P 166-73.
---------------------------------------------------------------------------

9. Section 33.11--Commission Procedures for Consideration of
Applications Under Section 203 of the FPA
    172. In the NOPR, the Commission proposed new subsections 33.11(a)
and (b) to implement amended section 203(a)(5). Specifically,
subsection 33.11(a) provides that the Commission will act on a
completed application for approval of a transaction (i.e., an
application that meets the requirements of Part 33), not later than 180
days after the completed application is filed.\123\ 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 and issues 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, as required by amended section 203 of
the FPA.\124\
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    \123\ As explained in the Merger Policy Statement, a complete
application is one that describes the merger being proposed and that
contains all the information necessary to explain how the merger is
consistent with the public interest, including an evaluation of the
merger's effect on competition, rates, and regulation. Merger Policy
Statement at 30,127. The Commission's review process will begin when
the application is deemed to be complete.
    \124\ NOPR at P 56.
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    173. Proposed subsection 33.11(b) would provide for the expeditious
consideration of completed section 203 applications that are not
contested, are not mergers, and are consistent with Commission
precedent, because they should typically meet the standards established
in section 203(a)(4).\125\
---------------------------------------------------------------------------

    \125\ Id. at P 57.
---------------------------------------------------------------------------

    174. The Commission also stated that it could not provide a
comprehensive description of all the classes or types of transactions
that will receive the expedited review. However, the Commission
proposed that transactions that would generally warrant expedited
review include: (1) A disposition of only transmission facilities,
particularly those that both before and after the transaction remain
under the functional control of a Commission-approved RTO or
independent system operator; (2) transfers involving generation
facilities of a size that do not require an Appendix A analysis; (3)
internal corporate reorganizations that do not present cross-
subsidization issues; and (4) the acquisition of a foreign utility
company by a holding company with no captive customers in the United
States.\126\
---------------------------------------------------------------------------

    \126\ NOPR at P 59. The Commission noted that PUHCA 1935
exempted from its requirements certain acquisitions of foreign
utility companies by a holding company with operations in the United
States. 15 U.S.C. 33 (2000); 17 CFR 250.57 (2005). However, amended
section 203 appears to provide no such exemption.
---------------------------------------------------------------------------

    175. With respect to the latter category, the Commission recognized
that amended section 203's requirement for regulatory approval could
have a chilling effect on investment--particularly if the transaction
were subjected to a lengthy regulatory review. The Commission noted
that such a transaction would not cause competitive concerns in the
United States and, further, that there would be no concerns about
cross-subsidization that harms captive customers in the United States.
In addition, the Commission stated that even with respect to the
acquisition of a foreign utility company by a holding company with
captive customers in the United States, there may be safeguards that
allow expedited approval of such transactions. Thus, the Commission
sought comment on procedures the Commission might adopt, or safeguards
it might require, to pre-approve or expedite such transactions while at
the same time protecting U.S. captive customers.
    176. Further, the Commission stated that it expects to have a 60-
day notice period for section 203 applications that involve, contain,
or require a competitive analysis per the part 33 and a 21-day notice
period for all other section 203 applications, except for certain
applications that may raise cross-subsidization concerns. The
Commission stated that it expects to have a 60-day notice period for
applications that seek authorization to transfer ownership of a
generation plant from one affiliate or associate company to another
company within the same corporate structure and for other applications
that may raise cross-subsidization or pledge or encumbrance
issues.\127\
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    \127\ NOPR at P 64-64. The Commission explained that not
included in this category are transactions that merely change
upstream ownership interests held by parent companies of public
utilities or transactions that do not alter the terms of power
supply or power supply costs for captive customers.
---------------------------------------------------------------------------

a. Comments
    177. Many commenters, including TAPSG and UWUA, support the
Commission's proposal regarding the criteria for expedited
consideration (applications that are not contested, are not mergers,
and are consistent with Commission precedent). APPA/NRECA and TANC,
however, caution that uncontested section 203 applications should still
be reviewed to ensure they are consistent with Commission precedent.
International Transmission notes that limiting expedited review to non-
merger transactions is inconsistent with the Commission's recognition
in the NOPR that not all merger transactions require the same level of
analysis. Oklahoma Commission suggests that state commissions take over
initial transaction review and that the Commission adopt a role of
appellate review where there are disagreements between state
commissions and the applicant.
    178. TAPSG and UWUA agree with the Commission's proposal not to
provide a comprehensive description of the classes or types of
transactions that generally fall into the expedited review category.
However, TANC suggests that the Commission adopt an exhaustive list of
section 203 transactions that are eligible for expedited review to
provide customers with the utmost protection and certainty.
International Transmission recommends that, in order to encourage
investment in independent transmission, dispositions, consolidations,
or acquisitions by independent transmission companies should receive
expedited review, even if all of the criteria in section 33.11(b) of
the proposed regulations are not met. Many commenters recommend that,
for all four of the categories, the Commission automatically approve
the application upon filing an informational report where the
applicants make certain verifications.\128\
---------------------------------------------------------------------------

    \128\ See EEI Comments at 22-23. For example, one verification
that EEI proposes is that the proposed transaction results in no
transfers of facilities between a traditional utility associate
company with wholesale or retail customers served under cost-based
regulation and an associate company. Thus, a transaction that
results in a transfer of facilities into or out of a traditional
utility with captive customers could not qualify for automatic
approval.
---------------------------------------------------------------------------

    179. With respect to proposed section 33.11(b)(4), commenters had a
variety of responses on the procedures that the Commission might adopt,
or safeguards it might require, to expedite or pre-approve transactions
involving the acquisition of a FUCO by a holding company with no
captive customers in the U.S. Many commenters request that the
Commission not adopt any rules or policies that would impose undue
regulatory burdens on holding companies that seek to invest in foreign
utility companies.
    180. Many traditional public utility commenters and others
generally support a 30-day expedited review or pre-approval for
transactions involving acquisitions of FUCOs.\129\ Commenters suggest
that the Commission automatically approve the application when the
applicant provides certain cross-subsidization verifications (similar
to those listed in EEI's comments), as well as assurances that the
transaction will have no adverse effect on competition, rates, and
regulation, if the filing is verified by a duly authorized corporate
official of the holding company.\130\ The transaction should be deemed
approved upon making such informational filing.
---------------------------------------------------------------------------

    \129\ E.g., EEI, Duke/Cinergy, Entergy, AEP, Progress Energy,
Ameren, AES, EPSA, Scottish Power, and E.ON.
    \130\ E.g., EEI Comments at 22-23, 25-26; National Grid Comments
at 20-22; AES Comments at 15-19; EPSA Comments at 8-9.
---------------------------------------------------------------------------

    181. State commission commenters, including NARUC, Ohio Commission,
and New Jersey Board, generally suggest that, in order to protect
domestic customers while expediting or pre-approving foreign utility
transactions, the Commission should consider reviewing the financial
condition and credit ratings of the acquiring utility holding company
and its operating utility companies, or require applicants to submit
service agreements, codes of

conduct, and affiliate rules.\131\ They recommend that the Commission
also conduct a cursory ``due diligence'' review of historical
information from annual FERC Form 1 filings by the holding company's
operating utility companies to examine trends in the holding company's
investment in its domestic operating utilities and in their quality of
service. The Commission could get this information from state
regulatory commissions.
---------------------------------------------------------------------------

    \131\ See, e.g., NARUC Comments at 15-16; Ohio Commission
Comments at 8-9; New Jersey Board Comments at 9-10.
---------------------------------------------------------------------------

    182. Some commenters are cautious of the Commission's proposed
expedited procedures for approving the acquisition of FUCOs. TAPSG
states that the Commission should not decide in the abstract how
reviews of such transactions can be expedited. Public Citizen urges the
Commission to protect domestic ratepayers by requiring that a strong
showing be made that such a transaction is consistent with the public
interest and by evaluating whether attempts by off-shore companies to
acquire or hold controlling shares in U.S. public utilities can be
found to be consistent with the public interest.
    183. With respect to proposed section 33.11(b)(1) and expedited
procedures for a disposition of transmission facilities only
(particularly those that both before and after the transaction remain
under the functional control of a Commission-approved RTO or ISO), TANC
comments that expedited review should be used only where the facilities
will remain under the functional control of the same Commission-
approved RTO or ISO after the transaction is completed. TANC also
states that transmission-only dispositions should receive expedited
review only when they involve entities that are non-dominant market
participants. APPA/NRECA argues that dispositions of transmission-only
facilities should not generally receive expedited review.
    184. With respect to proposed section 33.11(b)(2) and expedited
procedures for transfers involving generation facilities of a size that
do not require an Appendix A analysis, many traditional public utility
commenters suggest that such expedited review be extended to include
all transactions that do not require an Appendix A analysis. They
recommend revising the proposed regulations to state: ``transactions
that do not require an Appendix A analysis.'' \132\ They also state
that, even in cases where an Appendix A analysis is required for a
generation facility acquisition, the Commission should act
expeditiously in certain circumstances, setting a 30-day comment period
and issuing an order no later than 30 days thereafter. Southern
Companies requests that the Commission provide guidance regarding when
an Appendix A analysis is required.
---------------------------------------------------------------------------

    \132\ See, e.g., EEI Comments at 24-26; Duke/Cinergy Comments at
10-11; Entergy Comments at 9-11.
---------------------------------------------------------------------------

    185. With regard to proposed section 33.11(b)(3), EEI, Entergy, and
Duke/Cinergy support expedited procedures or pre-approval for internal
corporate reorganizations that do not present cross-subsidization
issues. National Grid, however, requests expedited procedures or pre-
approval for internal reorganizations that do involve mergers.\133\ It
requests that the Commission facilitate all internal corporate
reorganizations that do not either introduce new third-party interests
or cross-subsidization issues, which are routine aspects of a company's
financial operations, and do not need to be disrupted by formal
proceedings, however expedited, under section 203.
---------------------------------------------------------------------------

    \133\ National Grid Comments at 33.
---------------------------------------------------------------------------

    186. EEI, Entergy, and Duke/Cinergy, state that the Commission
could streamline the process further by granting blanket
authorizations, for FUCO acquisitions involving holding companies that
do not have captive customers in the U.S. and for internal corporate
reorganizations involving public utility and holding company systems
that do not involve traditional utility companies with captive
customers.\134\
---------------------------------------------------------------------------

    \134\ See, e.g., EEI Comments at 26-27.
---------------------------------------------------------------------------

    187. Several commenters also made suggestions regarding notice
periods and complete applications. Many commenters support the
Commission's expected notice periods. However, some commenters
recommend that, except in simple cases, the Commission provide for a
60-day notice period. They suggest that the applicant bear the burden
of demonstrating that a shorter notice period is appropriate. TAPSG and
UWUA recommend that, where applications are not complete, the
Commission should issue deficiency letters. TAPSG also suggests that
the Commission not deem an application complete until after it has
reviewed any interventions or protests, since they may identify
deficiencies in the application. UWUA recommends that the 180-day clock
on section 203 applications should not begin to run until a complete
application has been submitted. It states that merger applicants should
have an increased responsibility to submit complete applications that
are supported with full explanations of the details of the proposed
transaction, including testimony.
b. Commission Determination
    188. The Commission adopts the proposed criteria for expedited
consideration in section 33.11(b). Expedited consideration will be
available for applications that are not contested, are not mergers, and
are consistent with Commission precedent. With respect to APPA/NRECA
and TANC's concerns that the Commission should review even uncontested
section 203 applications to ensure that they are consistent with
Commission precedent, we note that the Commission has always reviewed
section 203 applications, regardless of whether they are contested.
    189. Further, while some commenters recommend that the regulations
contain an exhaustive list of the types of transactions that would
generally warrant expedited review, we continue to believe that doing
so could exclude transactions that may warrant expedited review, but
that are not listed. Thus, as discussed below, we will not adopt an
exhaustive list of such transactions. The Commission will not expressly
provide expedited review for mergers or acquisitions involving
independent transmission companies, as suggested by International
Transmission, as review of such cases would be more appropriately
addressed on an individual basis.\135\
---------------------------------------------------------------------------

    \135\ We note that although the Filing Requirements Rule
provided that applicants for a transaction involving only
transmission facilities need not provide a competitive analysis
under Sec. Sec.  33.3 or 33.4 of the Commission's regulations, it
also states that if the Commission determines that a filing
nonetheless raises competitive issues, the Commission will evaluate
those issues. Filing Requirements Rule at 31,902.
---------------------------------------------------------------------------

    190. Commenters have raised many valid arguments regarding the
Commission's four proposed categories of transactions generally
warranting expedited review. We will adopt the NOPR's proposal in
section 33.11(b)(1) and will generally provide expedited review for a
disposition of only transmission facilities, particularly those that
both before and after the transaction remain under the functional
control of a Commission-approved RTO or ISO. We note APPA/NRECA's
concern that the consolidation of control of jurisdictional facilities
should be carefully evaluated under section 203 and TANC's argument
that expedited review should be limited to those facilities that will
remain under the functional control of the same Commission-approved RTO
or ISO after the transaction is completed. However,

we believe that ISOs and RTOs are pro-competitive and are effective at
preventing market power abuse because they have Commission-approved
market-monitoring and mitigation measures in place. Further, we
continue to believe that, as stated in the Filing Requirements Rule,
``the standards set forth in Order No. 2000 \136\ 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.'' \137\ For these
reasons, we adopt section 33.11(b)(1) as proposed in the NOPR.
---------------------------------------------------------------------------

    \136\ Regional Transmission Organizations, Order No. 2000, 65 FR
809 (Jan. 6, 2000), FERC Stats. & Regs. ] 31,089, at 31,108 (1999),
order on reh'g, Order No. 2000-A, 65 FR 12,088 (Mar. 8, 2000), FERC
Stats. & Regs. ] 31,092 (2000), aff'd sub nom. Public Utility
District No. 1 of Snohomish County, Washington v. FERC, 272 F.3d 607
(DC Cir. 2001).
    \137\ Filing Requirements Rule at 31,902.
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    191. With respect to proposed section 33.11(b)(2), the Commission
will adopt commenters' proposal and expand that section to generally
provide expedited review for ``transactions that do not require an
Appendix A analysis.'' On further consideration, the Commission finds
that it is not necessary to limit the transactions that will receive
expedited review based on the amount of generation that is being
transferred in the transaction. First, we note that the amount as well
as the type of generation involved can have different market power
consequences, depending on the situation, in different markets. Second,
our current regulations, which allow applicants to file an abbreviated
competitive analysis (e.g., an analysis that does not include an
Appendix A analysis) in certain circumstances, permit us to seek
additional information if it is needed to allow us to evaluate the
effects of the transaction. Therefore, although in the first instance
the applicant must decide whether to perform a full-fledged analysis,
it is the Commission that ultimately decides whether such analysis is
necessary and thus whether the filing qualifies for expedited review.
    192. With respect to proposed section 33.11(b)(3), we agree with
commenters that internal corporate reorganizations that do not present
cross-subsidization issues are unlikely to cause anticompetitive
effects. Thus, instead of providing expedited review for this category,
the Commission is granting a blanket authorization for internal
corporate reorganizations that do not present cross-subsidization
issues and that do not involve a traditional public utility with
captive customers.
    193. With respect to the last category, proposed section
33.11(b)(4), we will not adopt the NOPR's proposal to expedite review
for transactions involving the acquisition of a FUCO by a holding
company with no captive customers in the U.S. Instead, we will grant a
blanket authorization for any holding company in a holding company
system that includes a transmitting utility or an electric utility
company 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 have captive customers in
the United States, the authorization is conditioned on the holding
company verifying by a duly authorized corporate official of the
holding company that the proposed transaction will not have any adverse
effect on competition, rates, or regulation, and will not result in, at
the time of the transaction or in the future: (1) Any transfer of
facilities between a traditional utility associate company with
wholesale or retail customers served under cost-based regulation and an
associate company; (2) any new issuance 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) any new pledge or encumbrance 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; or (4) any
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. Such transactions will be deemed approved only upon
making a filing of these verifications.
    194. Regarding notice periods, the Final Rule adopts the NOPR
approach. Some commenters recommend that the Commission's default rule
for all section 203 applications should be to provide the public 60
days to submit comments, and that the applicants should bear the burden
or demonstrating that a shorter notice is appropriate. However, the
Commission finds that the NOPR notice periods will allow us to continue
processing section 203 applications quickly to allow reasonable
business goals to be met. Accordingly, we expect to have a 60-day
notice period for section 203 applications that involve, contain, or
require a competitive analysis per the revised filing requirements, and
a 21-day notice period for all other section 203 applications, except
those that may raise cross-subsidization concerns. We will not
formalize this policy by rule, so that we can be flexible to deal with
varying circumstances. This will allow us to protect against some
commenters' concerns that the public notice period would be
``unnecessarily short-circuited,'' and ensure that it will only be
streamlined as appropriate.

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

    195. When the Commission considers a proposed transaction's effect
on federal regulation, section 2.26(e)(1) states that ``[w]here the
merged entity would be part of a registered public utility holding
company, if applicants do not commit in their application to abide by
this Commission's policies with regard to affiliate transactions, the
Commission will set the issue for a trial-type hearing.''
    196. However, in the NOPR, the Commission explained that because
EPAct 2005 repeals PUHCA 1935,\138\ activities of registered holding
companies that were previously subject to SEC regulation, including
inter-company transactions, will no longer be exempt from this
Commission's regulation once PUHCA 1935 repeal takes effect on February
8, 2006.\139\ Thus, the Commission stated that there is no longer a
concern about any potential shift in regulation from this Commission to
the SEC under the effect of regulation factor, and proposed to delete
section 2.26(e)(1).\140\
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    \138\ EPAct 2005 Sec.  1263.
    \139\ See 17 CFR part 250 (2005).
    \140\ NOPR at P 67. However, the Commission reiterated that
applicants are still required to address whether the transaction
will have any other effect on the Commission's regulation.
---------------------------------------------------------------------------

    197. Proposed new subsection 2.26(f) would state 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.
1. Comments
    198. Commenters did not specifically address the Commission's
proposed section 2.26(e) and (f) amendments. However, some recommend
that the Commission rethink its current merger policy and make
important decisions as

to what ``consistent with the public interest'' means in light of
amended section 203 and the repeal of PUHCA 1935. Some comment that the
Commission should broaden its public interest inquiry to consider
ratepayer benefits on an application-specific basis; namely, applicants
could propose an open season guarantee under which their existing
wholesale requirements customers could terminate their contracts if the
applicants request a rate increase affecting those customers for the
first five years after the merger is consummated.
    199. Ohio Commission comments that the Commission should consider
factors in addition to those listed in section 2.26(b). It recommends
that the Commission require that a holding company secure a letter of
endorsement, or order, from any affected state regulatory commission in
which the holding company has utility operations. It states that a
similar endorsement requirement is used by the SEC to implement Rule 53
\141\ regarding authority for registered holding company financings in
connection with the acquisition of exempt wholesale generators.
---------------------------------------------------------------------------

    \141\ 17 CFR 250.53 (2005).
---------------------------------------------------------------------------

    200. Commenters also explain that, in light of amended section 203,
the Commission should expect numerous section 203 applications seeking
approval of ``cross-country'' (or interstate) mergers. They state that
the Commission's current method for evaluating the effect of a proposed
electric utility merger on competition, the Appendix A analysis, was
developed when cross-country electric utility mergers were not common,
because of PUHCA 1935. The ``impact on competition'' horizontal screen
analysis looks primarily at whether competition will be lessened in the
``common'' markets where the merger applicants operate. They state that
continued use of the Appendix A analysis alone may result in
substantial industry consolidation.
    201. TAPSG asserts that the Commission almost exclusively relies on
the HHI aspect of the Appendix A analysis and fails to examine the
other competitive effects of a transaction. It comments that the
Commission should require applicants to submit documents and data,
beyond those needed to perform the Appendix A analysis, including the
kinds of information submitted to the antitrust agencies as part of the
initial Hart-Scott-Rodino \142\ notification, and should require
applicants to submit supply curve analyses for each relevant market.
---------------------------------------------------------------------------

    \142\ TAPSG explains that the Hart-Scott-Rodino notification is
a far more limited submission required of all utilities subject to
the Hart-Scott-Rodino filing requirements and described in 16 CFR
part 803 (2005).
---------------------------------------------------------------------------

2. Commission Determination
    202. With respect to commenters' specific concerns regarding the
Commission's merger policy, we are not persuaded at this time to change
our current policies. Our standard of review is flexible enough to
consider any changes in market structure that ultimately result from
the EPAct 2005 and the repeal of PUHCA 1935. However, once the
Commission has gained more experience in evaluating section 203
applications under the new statute, we may consider reevaluating our
merger policy in general. Accordingly, we adopt the proposal set forth
in the NOPR with respect to amended sections 2.26(e) and (f).

IV. Information Collection Statement

    203. Office of Management and Budget (OMB) regulations require that
OMB approve certain reporting and recordkeeping requirements
(collections of information) imposed by an agency.\143\ The information
collection requirements in this Final Rule are identified under the
Commission's data collection, FERC-519, ``Applications Under Federal
Power Act Section 203.'' Under section 3507(d) of the Paperwork
Reduction Act of 1995,\144\ the reporting requirements in this
rulemaking will be submitted to OMB for review.
---------------------------------------------------------------------------

    \143\ 5 CFR 1320.11 (2005).
    \144\ 44 U.S.C. 3507(d) (2000).
---------------------------------------------------------------------------

    204. Respondents subject to the filing requirements of this Final
Rule will not be penalized for failing to respond to this collection of
information unless the collection of information displays a valid OMB
control number. ``Display'' is defined as publishing the OMB control
number in regulations, guidelines, forms or other issuances in the
Federal Register (for example, in the preamble or regulatory text for
the Final Rule containing the information collection).\145\
---------------------------------------------------------------------------

    \145\ See 1 CFR 21.35; 5 CFR 1320.3(f)(3).
---------------------------------------------------------------------------

    Public Reporting Burden: In the NOPR, the Commission stated that
the regulations that it proposed should have a minimal impact on the
current reporting burden associated with an individual application, as
they would not substantially change the filing requirements with which
section 203 applicants must currently comply. Further, the Commission
stated that it did not expect the total number of section 203
applications to increase substantially under amended section 203. The
Commission received 42 comments on its NOPR and only GE EFS
specifically addressed its estimates. GE EFS notes that the
``Information Collection Statement'' in the NOPR states that ``the
Commission does not expect the total number of section 203 applications
under amended section 203 to increase substantially.'' \146\ GE EFS
comments that, unless the Commission limits the overly broad scope of
its proposed rules, the Commission will be burdened with applications
for acquisitions of securities of QFs, which heretofore were exempted
from section 203.\147\ As noted above, we believe that the blanket
authorizations granted herein for certain holding company acquisitions
of non-voting securities and up to 9.9 percent of voting securities in
electric utility companies will adequately address GE EFS' concerns. To
the extent additional blanket authorizations are needed or appropriate,
we will consider those on a case-by-case basis. Thus, we believe that
we have lessened the burden on applicants subject to the requirements
of amended section 203, including for applicants seeking to acquire
securities of QFs. Therefore, the Commission will retain its initial
estimates.
---------------------------------------------------------------------------

    \146\ NOPR at P 70.
    \147\ GE EFS Comments at 2.
---------------------------------------------------------------------------

    The Commission is submitting a copy of this Final Rule to OMB for
review and approval. In their notice of December 9, 2005, OMB took no
action on the NOPR, instead deferring their approval until review of
the Final Rule.
    Title: FERC-519, Applications Under Federal Power Act Section 203.
    Action: Proposed Information Collection.
    OMB Control No: 1902-0082.
    Respondents: Businesses or other for profit.
    Necessity of the Information: The information collected under the
requirements of FERC-519 is used by the Commission to implement section
203 of the Federal Power Act and the Code of Federal Regulations under
18 CFR part 33 and 18 CFR 2.26. This Final Rule is limited to
implementing amended section 203 of the FPA, which directs the
Commission to adopt a rule to do so. Further, this Final Rule does not
substantially change the current filing requirements or regulations
that applicants must comply with for transactions subject to FPA
section 203.
    205. Interested persons may obtain information on this information
collection by contacting the following: Federal Energy Regulatory
Commission, 888 First Street, NE., Washington, DC

20426, Attention: Michael Miller, Officer of the Executive Director,
phone:<PHONE_NUMBER>, fax:<PHONE_NUMBER>, e-mail:
<EMAIL_ADDRESS>
    206. Comments concerning this information collection can be sent 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>, fax:
(202) 395-7285].

V. Environmental Analysis

    207. The Commission is required to prepare an Environmental
Assessment or an Environmental Impact Statement for any action that may
have a significant adverse effect on the human environment.\148\ The
Commission concludes that neither an Environmental Assessment or an
Environmental Impact Statement is required for this Final Rule under
section 380.4(a)(2)(ii) of the Commission regulations, which provides a
``categorical exclusion for rules that do not substantively change the
effect of legislation.''\149\
---------------------------------------------------------------------------

    \148\ Order No. 486, Regulations Implementing the National
Environmental Policy Act, 52 FR 47,897 (Dec. 17, 1987), FERC Stats.
& Regs. ] 30,783 (1987).
    \149\ 18 CFR 380.4(a)(2)(ii) (2005).
---------------------------------------------------------------------------

VI. Regulatory Flexibility Act Certification

    208. The Regulatory Flexibility Act of 1980 (RFA)\150\ generally
requires a description and analysis of final rules that will have a
significant economic impact on a substantial number of small
entities.\151\ The Commission is not required to make such analyses if
a rule would not have such an effect.
---------------------------------------------------------------------------

    \150\ 5 U.S.C. 601-12.
    \151\ The RFA definition of ``small entity'' refers to the
definition provided in the Small Business Act, which defines a
``small business concern'' as a business that is independently owned
and operated and that is not dominant in its field of operation. 15
U.S.C. 632. The Small Business Size Standards component of the North
American Industry Classification System defines a small electric
utility as one that, including its affiliates, is primarily engaged
in the generation, transmission, and/or distribution of electric
energy for sale and whose total electric output for the preceding
fiscal years did not exceed 4 million MWh. 13 CFR 121.201 (2005).
---------------------------------------------------------------------------

    209. The Commission adheres to its certification in the NOPR that
this rulemaking will not have a significant economic impact upon a
substantial number of small entities. As stated in the NOPR, EPAct 2005
directs the Commission to issue a rule adopting procedures for the
expeditious consideration of applications for the approval of
dispositions, consolidations, or acquisition, under this section. In
accordance with this directive, this rule implements section 203 of the
FPA. In particular, the rule increases the value threshold for filing a
section 203 application with the Commission from transactions in excess
of $50,000 to transactions in excess of $10 million (under amended
section 203 of the FPA). Further, the RFA directs agencies to consider
four regulatory alternatives to be considered in a rulemaking to lessen
the impact on small entities: Tiering or establishment of different
compliance or reporting requirements for small entities,
classification, consolidation, clarification or simplification of
compliance and reporting requirements, performance rather than design
standards, and exemptions. In this Final Rule, the Commission has
adopted tiering, and classification and simplification by classifying
the types of holding acquisitions that qualify for a grant of blanket
approval under section 203(a)(2). Further, the rule does not
substantially change the current requirements and regulations that
applicants must comply with for transactions subject to FPA section
203. Therefore, the Commission certifies that this rule will not have a
significant impact on a substantial number of small entities.

VII. Document Availability

    210. 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.
    211. 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.
    212. User assistance is available for eLibrary and the FERC'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).

VIII. Effective Date and Congressional Notification

    213. This Final Rule will take effect on February 8, 2006. The
Commission has determined, with the concurrence of the Administrator of
the Office of Information and Regulatory Affairs of OMB, that this rule
is not a major rule within the meaning of section 251 of the Small
Business Regulatory Enforcement Fairness Act of 1996.\152\ The
Commission will submit this Final Rule to both houses of Congress and
the General Accountability Office.\153\
---------------------------------------------------------------------------

    \152\ See 5 U.S.C. 804(2).
    \153\ See 5 U.S.C. 801(a)(1)(A).
---------------------------------------------------------------------------

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 Order of the Commission.
Magalie R. Salas,
Secretary.

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

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 paragraph (e) and by adding
paragraph (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
U.S.C. 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.
    (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;
    (ii) A transmitting utility or company that owns, operates, or
controls only facilities used solely for local distribution and/or
sales of electric energy at retail regulated by a state commission; or
    (iii) A transmitting utility or company if the transaction involves
an internal corporate reorganization that does not present cross-
subsidization issues and does not involve a traditional public utility
with captive customers.
    (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 section
(c)(2) shall provide the Commission with the same information, on the
same basis, that the holding company provides to 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 have captive customers in the United States,
the authorization is conditioned on the holding company 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 utility
associate company with wholesale or retail customers served under cost-
based regulation and an associate company;
    (B) Any new issuance of securities by traditional utility associate
companies with wholesale or retail customers served under cost-based
regulation for the benefit of an associate company;
    (C) Any new pledge or encumbrance 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; or
    (D) Any 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 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.

0
6. Section 33.2 is amended to add 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 the 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; 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 added 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. The transactions that would generally warrant expedited
review include:
    (1) A disposition of only transmission facilities, particularly
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\
---------------------------------------------------------------------------

    \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,
1997), 79 FERC ] 61,321 (1997) (Merger Policy Statement).

    Note: The following appendix will not appear in the Code of
---------------------------------------------------------------------------
Federal Regulations.

Appendix List of Intervenors and Commenters

Intervenors

    California Public Utilities Commission.
    Edison Mission Energy, Edison Mission Marketing & Trading, Inc.,
and Midwest Generation EME, LLC.
    Public Service Commission of Wisconsin.
    Public Utilities Commission of Ohio.
    Southern California Edison Company.

                               Commenters
------------------------------------------------------------------------
              Acronym                               Name
------------------------------------------------------------------------
ACC...............................  American Chemistry Counsel.
AEP...............................  American Electric Power Service
                                     Corporation.
AES...............................  The AES Corporation.
Ameren............................  Ameren Services Company.
APPA/NRECA........................  American Public Power Association
                                     and the National Rural Electric
                                     Cooperative Association.
Chairman Barton...................  Congressman Joe Barton.
Constellation.....................  Constellation Energy Group Inc.
Duke/Cinergy......................  Duke Energy Corporation and Cinergy
                                     Corporation.
EEI...............................  Edison Electric Institute.

Entergy...........................  Entergy Services, Inc.
E.ON..............................  E.ON AG.
EPSA..............................  Electric Power Supply Association.
FirstEnergy.......................  FirstEnergy Service Company.
GE EFS............................  GE Energy Financial Services.
HECO..............................  Hawaiian Electric Company, Inc.
Independent Sellers...............  Cogentrix Energy, Inc. and The
                                     Goldman Sachs Group, Inc.
Indiana Commission................  Indiana Utility Regulatory
                                     Commission.
Industrial Consumers..............  Electricity Consumers Resource
                                     Council, the American Iron and
                                     Steel Institute, the American
                                     Chemistry Council, and the PJM
                                     Industrial Customer Coalition.
International Transmission........  International Transmission Company.
Kentucky Commission...............  Kentucky Public Service Commission.
MidAmerican.......................  MidAmerican Energy Holdings Company.
Missouri Commission...............  Missouri Public Utilities
                                     Commission.
Morgan Stanley....................  Morgan Stanley Capital Group Inc.
NAFC..............................  National Alliance for Fair
                                     Competition.
NARUC.............................  National Association of Regulatory
                                     Utility Commissioners.
NASUCA............................  National Association of State
                                     Utility Consumer Advocates.
National Grid.....................  National Grid USA.
New Jersey Board..................  New Jersey Board of Public
                                     Utilities.
North Carolina Commission.........  North Carolina Utilities Commission.
Ohio Commission...................  Public Utilities Commission of Ohio.
Oklahoma Commission...............  Oklahoma Corporation Commission.
PNM...............................  PNM Resources, Inc.
Progress Energy...................  Progress Energy, Inc.
Public Citizen....................  Energy Program of Public Citizen,
                                     Inc.
Scottish Power....................  Scottish Power plc.
Southern Companies................  Southern Company Services, Inc.
Suez..............................  SUEZ Energy North America.
TANC..............................  Transmission Agency of Northern
                                     California.
TAPSG.............................  Transmission Access Policy Study
                                     Group.
UWUA..............................  Utility Workers Union of America,
                                     AFL-CIO.
Wisconsin Electric................  Wisconsin Electric Power Company.
Xcel..............................  Xcel Energy Services, Inc.
------------------------------------------------------------------------

[FR Doc. 06-77 Filed 1-5-06; 8:45 am]

BILLING CODE 6717-01-P