1348 Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 

1 16 U.S.C. 824b (2000). 

2Energy Policy Act of 2005, Pub. L. No. 109–58, 

119 Stat. 594 (2005). 

3EPAct 2005 §§ 1281 et seq. 

4 16 U.S.C. 824b (2000). 

5Transactions Subject to FPA Section 203, 70 FR 

58,636 (October 7, 2005), FERC Stats. & Regs. 

¶ 32,589 (2005). 

DEPARTMENT OF ENERGY 

Federal Energy Regulatory 

Commission 

18 CFR Parts 2 and 33 

[Docket No. RM05–34–000; Order No. 669] 

Transactions Subject to FPA Section 

203 

Issued December 23, 2005. 

AGENCY: Federal Energy Regulatory 

Commission. 

ACTION: Final rule. 

SUMMARY: Under Subtitle G (Market 

Transparency, Enforcement, and 

Consumer Protection), section 1289 

(Merger Review Reform), of Title XII 

(Electricity Modernization Act of 2005), 

of the Energy Policy Act of 2005 (EPAct 

2005), Public Law 109–58, 119 Stat. 594 

(2005), the Federal Energy Regulatory 

Commission (Commission) amends 18 

CFR 2.26 and 18 CFR part 33 to 

implement amended section 203 of the 

Federal Power Act (FPA).1

DATES: Effective Date: This Final Rule 

will become effective on February 8, 

2006. 

FOR FURTHER INFORMATION CONTACT: 

Sarah McWane (Legal Information), 

Office of the General Counsel, Federal 

Energy Regulatory Commission, 888 

First Street, NE., Washington, DC 

20426. (202) 502–8372. 

Phillip Nicholson (Technical 

Information), Office of Markets, 

Tariffs and Rates—West, Federal 

Energy Regulatory Commission, 888 

First Street, NE., Washington, DC, 

20426. (202) 502–8240. 

Jan Macpherson (Legal Information), 

Office of the General Counsel, Federal 

Energy Regulatory Commission, 888 

First Street, NE., Washington, DC 

20426. (202) 502–8921. 

James Akers (Technical Information), 

Office of Markets, Tariffs and Rates— 

West, Federal Energy Regulatory 

Commission, 888 First Street, NE., 

Washington, DC 20426. (202) 502– 

8101. 

SUPLEMENTARY INFORMATION: 

TABLE OF CONTENTS

Paragraph Nos. 

I. Introduction ................................................................................................................................................................................... 1. 

II. Background .................................................................................................................................................................................. 5. 

A. Commission Merger Policy Before Effective Date of Amended FPA Section 203 ............................................................. 5. 

B. Section 203 As Amended By EPAct 2005 .......................................................................................................................... 15. 

C. Notice of Proposed Rulemaking on Transactions Subject to FPA Section 203 ................................................................. 25. 

III. Discussion .................................................................................................................................................................................. 27. 

A. Amendments to 18 CFR Part 33 ......................................................................................................................................... 27. 

1. Section 33.1(a)—Applicability .............................................................................................................................................. 28. 

2. Section 33.1(b)—Definitions of ‘‘Associate Company,’’ ‘‘Holding Company,’’ ‘‘Holding Company System,’’ ‘‘Transmitting 

Utility,’’ and ‘‘Electric Utility Company’’ ................................................................................................................................. 33. 

3. Section 33.1(b)—Definition of ‘‘Existing Generation Facility’’ .............................................................................................. 74. 

4. Section 33.1(b)—Definition of ‘‘Non-Utility Associate Company’’ ........................................................................................ 88. 

5. Section 33.1(b)—Definition of ‘‘Value’’ ................................................................................................................................. 94. 

6. Compliance with Section 203 ............................................................................................................................................... 127. 

7. Cash Management Arrangements, Intra-Holding Company System Financing, Securities Under Amended Section 203, 

and Blanket Authorizations ................................................................................................................................................... 133. 

8. Section 33.2(j)—General Information Requirements Regarding Cross-Subsidization ........................................................ 146. 

9. Section 33.11—Commission Procedures for Consideration of Applications under Section 203 of the FPA ..................... 172. 

B. Amendments to 18 CFR 2.26—The Merger Policy Statement ........................................................................................... 195. 

1. Comments ............................................................................................................................................................................ 198. 

2. Commission Determination .................................................................................................................................................. 202. 

IV. Information Collection Statement ............................................................................................................................................... 203. 

V. Environmental Analysis ............................................................................................................................................................... 207. 

VI. Regulatory Flexibility Act Certification ....................................................................................................................................... 208. 

VII. Document Availability ................................................................................................................................................................ 210. 

VIII. Effective Date and Congressional Notification ........................................................................................................................ 213. 

Before Commissioners: Joseph T. Kelliher, 

Chairman; Nora Mead Brownell, and 

Suedeen G. Kelly. 

I. Introduction 

1. On August 8, 2005, the Energy 

Policy Act of 2005 (EPAct 2005) 2 was 

signed into law. Section 1289 (Merger 

Review Reform) of Title XII, Subtitle G 

(Market Transparency, Enforcement, 

and Consumer Protection),3 of EPAct 

2005 amends section 203 of the Federal 

Power Act (FPA).4 Amended section 

203: (1) Increases (from $50,000 to 

greater than $10 million) the value 

threshold for certain transactions being 

subject to section 203; (2) extends the 

scope of section 203 to include 

transactions involving certain transfers 

of generation facilities and certain 

holding companies’ transactions with a 

value in excess of $10 million; (3) limits 

the Federal Energy Regulatory 

Commission’s (Commission) review of a 

public utility’s acquisition of securities 

of another public utility to transactions 

greater than $10 million; (4) requires 

that the Commission, when reviewing 

proposed section 203 transactions, 

examine cross-subsidization and 

pledges or encumbrances of utility 

assets; and (5) directs the Commission 

to adopt, by rule, procedures for the 

expeditious consideration of 

applications for the approval of 

dispositions, consolidations, or 

acquisitions under section 203. 

2. As discussed below, on October 3, 

2005, the Commission issued a notice of 

proposed rulemaking (NOPR) in which 

it proposed certain modifications to 18 

CFR 2.26 and 18 CFR part 33 to 

implement amended section 203.5

Numerous comments were filed by a 

variety of entities. 

3. In this Final Rule, the Commission 

adopts some of the proposals in the 


cchase on PROD1PC60 with RULES2
Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 1349 

6EPAct 2005 sections 1261 et seq. Repeal of the 

Public Utility Holding Company Act of 1935 and 

Enactment of the Public Utility Holding Company 

Act of 2005, Order No. 667, FERC Stats. & Regs. 

¶ 31,197 (2005) (PUHCA 2005 Final Rule). 

7PUHCA 2005 Final Rule at P 17. Specifically, in 

the PUHCA Final Rule, the Commission stated that 

we intend to hold a technical conference no later 

than one year after PUHCA 2005 becomes effective 

to evaluate whether additional exemptions, 

different reporting requirements, or other regulatory 

actions need to be considered. The Commission’s 

regulations implementing PUHCA 2005 take effect 

on February 8, 2006. 

8EPAct 2005’s amendments to FPA section 203 

take effect on February 8, 2006. We will generally 

refer to EPAct 2005’s amended section 203 of the 

FPA as ‘‘amended’’ or ‘‘new’’ section 203. All other 

references to FPA section 203 are as it exists now. 9 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). 10Although the Commission applies these factors 

to all section 203 transactions, not just mergers, the 

filing requirements and the level of detail required 

may differ. Id. at 30,113 n.7. See also 18 CFR 2.26 

(2005) (codifying the Merger Policy Statement). 

11U.S. Department of Justice and Federal Trade 

Commission, Horizontal Merger Guidelines, 57 FR 

41,552 (1992), revised, 4 Trade Reg. Rep. (CCH) 

¶ 13,104 (Apr. 8, 1997). 

12Merger Policy Statement at 30,119–20. 

13See id. at 30,121–24. 

14 15 U.S.C. 79a et seq. (2000). 

15Merger Policy Statement at 30,125; see also 

Atlantic City Electric Co. and Delmarva Power & 

Light Co., 80 FERC ¶ 61,126 at 61,412, order 

denying reh’g, 81 FERC ¶ 61,173 (1997). With 

respect to a transaction’s effect on state regulation, 

where the state commissions have authority to act 

on the transaction, the Commission stated that it 

intends to rely on them to exercise their authority 

to protect state interests. 

NOPR as well as many of the 

commenters’ recommendations. 

Specifically, this Final Rule: 

(1) Implements the new applicability 

of amended section 203 of the FPA; 

(2) Grants blanket authorizations for 

certain types of transactions, including 

foreign utility acquisitions by holding 

companies, intra-holding company 

system financing and cash management 

arrangements, certain internal corporate 

reorganizations, and certain investments 

in transmitting utilities and electric 

utility companies; 

(3) Adopts many of the NOPR’s 

proposed defined terms, including 

‘‘electric utility company,’’ ‘‘holding 

company,’’ and ‘‘non-utility associate 

company,’’ but clarifies the application 

of these terms to certain entities; 

(4) Amends the proposed definition of 

‘‘existing generation facility;’

(5) Adopts a simpler rule than was 

proposed in the NOPR with respect to 

the determination of ‘‘value’’ as it 

applies to various section 203 

transactions; 

(6) Clarifies and refines the NOPR’s 

proposal with respect to a section 203 

applicant’s obligation to file evidentiary 

support to demonstrate that a proposed 

transaction will not result in crosssubsidization of a non-utility associate 

company or pledge or encumbrance of 

utility assets for the benefit of an 

associate company; and 

(7) Adopts the NOPR’s proposal that 

the Commission provide expeditious 

consideration of completed applications 

for the approval of transactions that are 

not contested, do not involve mergers, 

and are consistent with Commission 

precedent. 

4. Our goal is to carry out the 

expanded authorities and requirements 

contained in the new section 203 

amendments to ensure that all 

jurisdictional transactions subject to 

section 203 are consistent with the 

public interest and at the same time 

ensure that our rules do not impede 

day-to-day business transactions or 

stifle timely investment in transmission 

and generation infrastructure. We 

believe we have accomplished this 

result with the rules herein. However, at 

the technical conference we announced 

in our final rule implementing the 

Public Utility Holding Company Act of 

2005 (PUHCA 2005),6 to be held within 

the next year,7 we will also address 

issues raised in this proceeding, 

including the appropriateness of the 

blanket authorizations granted herein 

and whether additional steps are needed 

to protect against cross-subsidization 

and pledges or encumbrance of utility 

assets. 

II. Background 

A. Commission Merger Policy Before 

Effective Date of Amended FPA Section 

203 

5. Section 203 of the FPA 8 currently 

provides that: No public utility shall 

sell, lease or otherwise dispose of the 

whole of its facilities subject to the 

jurisdiction of the Commission, or any 

part thereof of a value in excess of 

$50,000, or by any means whatsoever, 

directly or indirectly, merge or 

consolidate such facilities or any part 

thereof with those of any other person, 

or purchase, acquire, or take any 

security of any other public utility, 

without first having secured an order of 

the Commission authorizing it to do so. 

The Commission shall approve such 

transactions if they are ‘‘consistent with 

the public interest.’’

6. In 1996, the Commission issued the 

Merger Policy Statement 9 updating and 

clarifying the Commission’s procedures, 

criteria, and policies concerning public 

utility mergers. The purpose of the 

Merger Policy Statement was to ensure 

that mergers are consistent with the 

public interest and to provide greater 

certainty and expedition in the 

Commission’s analysis of merger 

applications. 

7. The Merger Policy Statement sets 

out three factors the Commission 

generally considers when analyzing 

whether a proposed section 203 

transaction 10 is consistent with the 

public interest: Effect on competition; 

effect on rates; and effect on regulation. 

8. With respect to the first factor, the 

effect on competition, the Merger Policy 

Statement adopts the Department of 

Justice (DOJ)/Federal Trade Commission 

(FTC) 1992 Horizontal Merger 

Guidelines (Guidelines) 11 as the 

analytical framework for examining 

horizontal market power concerns. The 

Merger Policy Statement also uses an 

analytical screen (Appendix A analysis) 

to allow early identification of 

transactions that clearly do not raise 

competitive concerns.12 As part of the 

screen analysis, applicants must define 

the relevant products sold by the 

merging entities, identify the customers 

and potential suppliers in the 

geographic markets that are likely to be 

affected by the proposed transaction, 

and measure the concentration in those 

markets. Using the Delivered Price Test 

to identify alternative competing 

suppliers, the concentration of potential 

suppliers included in the defined 

market is then measured by the 

Herfindahl-Hirschman Index (HHI) and 

used as a screen to determine which 

transactions clearly do not raise market 

power concerns. 

9. The Commission stated in the 

Merger Policy Statement that it will 

examine the second factor, the effect on 

rates, by focusing on customer 

protections designed to insulate 

consumers from any harm resulting 

from the transaction.13

10. The Merger Policy Statement set 

forth a third factor for examination, the 

effect on regulation. This includes both 

state regulation and the Commission’s 

regulation, including any potential shift 

in regulation from the Commission to 

the Securities and Exchange 

Commission (SEC) due to a transaction 

creating a registered public utility 

holding company under the Public 

Utility Holding Company Act of 1935 

(PUHCA 1935).14 The Merger Policy 

Statement explained that, unless 

applicants commit themselves to abide 

by this Commission’s policies with 

regard to affiliate transactions involving 

non-power goods and services, we will 

set the issue of the effect on regulation 

for hearing.15


cchase on PROD1PC60 with RULES2
1350 Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 

16Revised Filing Requirements Under Part 33 of 

the Commission’s Regulations, Order No. 642, 65 

FR 70,983 (Nov. 28, 2000), FERC Stats. & Regs., July 

1996–Dec. 2000 ¶ 31,111 (2000), order on reh’g, 

Order No. 642–A, 66 FR 16,121 (Mar. 23, 2001), 94 

FERC ¶ 61,289 (2001) (codified at 18 CFR Part 33 

(2005)) (Filing Requirements Rule). 17Filing Requirements Rule at 31,902 & 31,907. 

The Commission clarified that, if it later determined 

that a filing raised competitive issues, the 

Commission would evaluate those issues and direct 

the applicant to submit any data needed to satisfy 

the Commission’s concerns. Id. at n.79. 

18 Id. at 31,873. 

19 Id. at 31,876. 

20 Id. §§ 1261, 1274. PUHCA 2005 Final Rule at 

P 1. 

21Section 203(b) states: 

The Commission may grant any application for an 

order under this section in whole or in part and 

upon such terms and conditions as it finds 

necessary or appropriate to secure the maintenance 

of adequate service and the coordination in the 

public interest of facilities subject to the 

jurisdiction of the Commission. The Commission 

may from time to time for good cause shown make 

such orders supplemental to any order made under 

this section as it may find necessary or appropriate. 

22 70 FR 58,636 (October 7, 2005). On October 19, 

2005, an errata notice was published in the Federal 

Register (70 FR 60,748), correcting Paragraph 1, 

footnote 4 of the NOPR to refer to February 8, 2006, 

as opposed to February 3, 2006. 

11. The Commission later issued the 

Filing Requirements Rule,16 a final rule 

updating the filing requirements under 

18 CFR part 33 of the Commission’s 

regulations for section 203 applications. 

The Filing Requirements Rule 

implements the Merger Policy 

Statement and provides detailed 

guidance to applicants for preparing 

applications. The revised filing 

requirements also assist the Commission 

in determining whether section 203 

transactions are consistent with the 

public interest, provide more certainty, 

and expedite the Commission’s 

handling of such applications. 

12. Further, the Filing Requirements 

Rule codified the Commission’s 

screening approach, provided specific 

filing requirements consistent with 

Appendix A of the Commission’s 

Merger Policy Statement, established 

guidelines for vertical competitive 

analysis, and set forth filing 

requirements for mergers that may raise 

vertical market power concerns. 

13. The Filing Requirements Rule also 

reduced the information burden for 

transactions that clearly raise no 

competitive concerns. The Commission 

explained that for certain transactions, 

abbreviated filing requirements are 

appropriate because it is relatively easy 

to determine that they will not harm 

competition and, thus, a full-fledged 

horizontal screen analysis or vertical 

competitive analysis is not required.17

14. The Commission stated in the 

Filing Requirements Rule that it 

intended to continue processing section 

203 applications expeditiously, with a 

goal of issuing an initial order for most 

mergers within 150 days of a completed 

application.18 Further, the Commission 

stated that it intended to continue 

processing uncontested non-merger 

applications within 60 days of filing and 

protested non-merger applications 

within 90 days of filing.19

B. Section 203 as Amended by EPAct 

2005 

15. EPAct 2005 revises section 203(a) 

of the FPA as follows: 

16. Amended section 203(a)(1) states 

that no public utility shall, without first 

having secured an order of the 

Commission authorizing it to do so: (A) 

Sell, lease, or otherwise dispose of the 

whole of its facilities subject to the 

jurisdiction of the Commission, or any 

part thereof of a value in excess of $10 

million; (B) merge or consolidate, 

directly or indirectly, such facilities or 

any part thereof with those of any other 

person, by any means whatsoever; (C) 

purchase, acquire, or take any security 

with a value in excess of $10 million of 

any other public utility; or (D) purchase, 

lease, or otherwise acquire an existing 

generation facility: (i) That has a value 

in excess of $10 million; and (ii) that is 

used for interstate wholesale sales and 

over which the Commission has 

jurisdiction for ratemaking purposes. 

17. Section 203(a)(2) adds the entirely 

new requirement that no holding 

company in a holding company system 

that includes a transmitting utility or an 

electric utility shall purchase, acquire, 

or take any security with a value in 

excess of $10 million of, or, by any 

means whatsoever, directly or 

indirectly, merge or consolidate with, a 

transmitting utility, an electric utility 

company, or a holding company in a 

holding company system that includes a 

transmitting utility, or an electric utility 

company, with a value in excess of $10 

million without prior Commission 

authorization. 

18. Like the existing section 203(a), 

amended section 203(a)(3) provides that 

upon receipt of an application for such 

approval, the Commission shall give 

reasonable notice in writing to the 

Governor and state commission of each 

of the states in which the physical 

property affected is situated, and to 

such other persons as it may deem 

advisable. 

19. Amended section 203(a)(4) states 

that after notice and opportunity for 

hearing, the Commission shall approve 

the proposed disposition, consolidation, 

acquisition, or change in control if it 

finds that the transaction will be 

consistent with the public interest. It 

also specifically provides that the 

Commission must find that the 

transaction will not result in crosssubsidization of a non-utility associate 

company or pledge or encumbrance of 

utility assets for the benefit of an 

associate company, unless that crosssubsidization, pledge, or encumbrance 

will be consistent with the public 

interest. 

20. Section 203(a)(5) adds the entirely 

new requirement that the Commission 

shall: By rule, adopt procedures for the 

expeditious consideration of 

applications for the approval of 

dispositions, consolidations, or 

acquisitions, under this section. Such 

rules shall identify classes of 

transactions, or specify criteria for 

transactions, that normally meet the 

standards established in paragraph (4). 

The Commission shall provide 

expedited review for such transactions. 

The Commission shall grant or deny any 

other application for approval of a 

transaction not later than 180 days after 

the 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 paragraph (4) 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. 

21. Section 203(a)(6), which is also 

new, provides that for purposes of this 

subsection, the terms ‘‘associate 

company,’’ ‘‘holding company,’’ and 

‘‘holding company system’’ have the 

meaning given those terms in PUHCA 

2005. 

22. Section 1289(b) provides that the 

amendments made by this section shall 

take effect six months after the date of 

enactment of EPAct 2005, or February 8, 

2006. This is the same date on which 

the repeal of PUHCA 1935 and 

enactment of the PUHCA 2005, are to 

take effect.20

23. Section 1289(c) provides that the 

amendments made by subsection (a) 

shall not apply to any section 203 

application that was filed on or before 

the date of enactment of EPAct 2005. 

24. Section 203(b) of the FPA remains 

unchanged.21

C. Notice of Proposed Rulemaking on 

Transactions Subject to FPA Section 

203 

25. On October 7, 2005, the 

Commission’s NOPR on Transactions 

Subject to FPA Section 203 was 

published in the Federal Register.22 As 

discussed in more detail below, in the 


cchase on PROD1PC60 with RULES2
Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 1351 

23The commenters are listed in an appendix to 

this order. 

24Because proposed section 33.1(a) is almost 

identical, with minor exceptions, to amended 

sections 203(a)(1)(A)–(D) and (a)(2), which are 

summarized in section II.B. above and set forth in 

the regulatory text, we will not recite that text here. 

25PUHCA 2005 § 1266(a). 

26Russello v. United States, 464 U.S. 16, 23 

(1983) (internal citations omitted). 

27EPSA Comments at 5. 

NOPR the Commission proposed to 

revise 18 CFR part 33 and 18 CFR 2.26 

of its rules to implement amended 

section 203 of the FPA. Comments were 

due on or before November 7, 2005.23

26. This Final Rule will be effective 

on the date on which amended section 

203 of the FPA takes effect, February 8, 

2006. 

III. Discussion 

A. Amendments to 18 CFR Part 33 

27. In the NOPR, the Commission 

proposed to amend 18 CFR part 33 by: 

Revising the title to read ‘‘Applications 

Under Federal Power Act Section 203;’’

amending section 33.1(a) to clarify what 

transactions are subject to amended 

section 203 and part 33 as a result of 

amended sections 203(a)(1)(A)–(D) and 

(a)(2) of the FPA; adding a new 

subsection 33.1(b) that defines certain 

new terms used in amended section 203 

that are not defined in EPAct 2005; 

adding a new subsection 33.2(j) to 

implement amended section 203(a)(4) 

regarding cross-subsidization and 

pledge or encumbrance issues; and 

adding new sections 33.11(a) and (b) to 

implement amended section 203(a)(5) 

regarding the Commission’s procedures 

for the consideration of applications 

under section 203 of the FPA. 

1. Section 33.1(a)—Applicability 

28. Proposed section 33.1(a) clarifies 

what transactions are subject to 

amended section 203 and part 33 as a 

result of amended sections 203(a)(1)(A)–

(D) and (a)(2) of the FPA.24

a. Comments 

29. Several commenters raise 

concerns, described in more detail 

below, regarding the applicability of 

amended section 203 to transactions 

involving foreign utility companies 

(FUCOs), qualifying facilities (QFs), 

exempt wholesale generators (EWGs),25

rural electric cooperatives, local 

distribution companies, stand-alone 

generation and retail sales, as well as 

intrastate transactions, i.e., transactions 

wholly within the Electric Reliability 

Council of Texas (ERCOT), Alaska, or 

Hawaii. They generally argue that 

Congress did not intend to expand 

significantly the Commission’s 

jurisdiction under amended section 203 

and, therefore, did not convey to the 

Commission jurisdiction over these 

types of transactions. Commenters also 

express concern over any potential 

overlap between the Commission’s 

scope of review under amended section 

203 and the scope of review by state 

commissions. They state that the 

Commission should not use its new 

section 203 authority to preempt state 

regulatory authority over rates and 

approvals of utility mergers and 

acquisitions. 

30. Electric Power Supply Association 

(EPSA) requests that the Commission 

modify the text of proposed section 

33.1(a)(1)(ii) to clarify that any merger 

or consolidation must exceed the $10 

million threshold before section 203 

filing approval is required. It states that 

the Commission should not alter its past 

practice of applying the statutory dollar 

threshold to all types of transactions 

requiring section 203 approval, 

including mergers and acquisitions. 

EPSA explains that the mergers and 

acquisitions clause of the currently 

effective section 203 and section 203 as 

amended by EPAct 2005 are 

substantially the same and do not 

specify a value amount. EPSA points 

out, however, that although the 

currently effective statutory language, 

like the newly enacted EPAct 2005 

language, did not codify the monetary 

threshold with respect to mergers and 

consolidations, for decades the 

Commission’s regulations (section 

33.1(a)(2)) have required section 203 

applications for mergers, consolidations 

and acquisitions only if they meet the 

$50,000 threshold (which on February 

8, 2006 will become $10 million). EPSA 

states that the NOPR provides no reason 

for the Commission to change its 

interpretation of section 203. 

b. Commission Determination 

31. Most of the concerns regarding the 

applicability of amended section 203 

involve new section 203(a)(2) and the 

Commission’s proposed definitions of 

‘‘electric utility company’’ and ‘‘holding 

company.’’ Accordingly, these 

comments are discussed in greater detail 

in those sections below. Similarly, 

concerns regarding any potential 

overlap between the scope of review of 

the Commission under amended section 

203 and that of state commissions are 

also discussed with the proposed 

definition of ‘‘electric utility company,’’

below. 

32. We reject EPSA’s request that we 

revise proposed section 33.1(a)(1)(ii) to 

clarify that any merger or consolidation 

must also exceed a monetary threshold 

before section 203 filing approval is 

required. The plain language of 

amended section 203(a)(1)(B) does not 

permit such an interpretation. Under 

amended section 203(a)(1)(B): ‘‘No 

public utility shall * * * merge or 

consolidate, directly or indirectly, such 

facilities [facilities subject to the 

jurisdiction of the Commission] or any 

part thereof with those of any other 

person, by any means whatsoever.’’ This 

provision, on its face, does not impose 

a dollar threshold on mergers or 

consolidations and proposed section 

33.1(a)(1)(ii) is consistent with the 

statutory provision. While Congress 

included a $10 million threshold for 

amended subsections 203(a)(1)(A), (C), 

(D), and 203(a)(2) (dispositions of 

jurisdictional facilities; acquisitions of 

securities of public utilities; purchases 

of existing generation facilities; holding 

company acquisitions), Congress clearly 

did not adopt a monetary threshold for 

mergers and consolidations in amended 

subsection 203(a)(1)(B). We note that 

‘‘[w]here Congress includes particular 

language in one section of a statute but 

omits it in another section of the same 

Act, it is generally presumed that 

Congress acts intentionally and 

purposely in the disparate inclusion or 

exclusion.’’ 26 In light of the 

unambiguous statutory language, we are 

not convinced by EPSA’s unsupported 

assertion that the failure to include a 

monetary threshold as to mergers and 

consolidations was an ‘‘oversight’’ and 

that ‘‘Congress did not intend to change 

[the currently effective] statutory and 

regulatory structure.’’ 27 While our 

regulations previously applied a dollar 

threshold to mergers and 

consolidations, such an approach is no 

longer tenable, since it is inconsistent 

with the plain language of amended 

section 203. Thus, we will not revise 

section 33.1(a)(1)(ii) to include a $10 

million threshold. 

2. Section 33.1(b)—Definitions of 

‘‘Associate Company,’’ ‘‘Holding 

Company,’’ ‘‘Holding Company 

System,’’ ‘‘Transmitting Utility,’’ and 

‘‘Electric Utility Company’’

33. As noted above, section 203(a)(2) 

adds an entirely new requirement to the 

FPA: 

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 first 


cchase on PROD1PC60 with RULES2
1352 Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 

28EPAct 2005 § 1262(5). 

29E.g., Congressman Joe Barton (Chairman 

Barton), The AES Corporation (AES), Edison 

Electric Institute (EEI), Entergy Services, Inc. 

(Entergy), E.ON AG (E.ON), EPSA, GE Energy 

Financial Services (GE EFS), Cogentrix Energy, Inc. 

and The Goldman Sachs Group, Inc. (Independent 

Sellers), National Grid USA (National Grid), PNM 

Resources, Inc. (PNM), Progress Energy, Inc. 

(Progress Energy), Scottish Power plc (Scottish 

Power), and SUEZ Energy North America (Suez). 

30EPAct 2005 1291(b)(22). 

31 16 U.S.C. 824a–3 (2000). 

32See, e.g., AES Comments at 5. For example, 

AES states that, unless ‘‘electric utility’’ is 

implicitly defined only to include domestic entities, 

the provisions of sections 111–117 of PURPA, 

which relate in part to the actions of state 

commissions as they affect ‘‘electric utilities,’’

become a complete non sequitur. 

33E.g., E.ON, Chairman Barton, and Suez. 

34E.g., EEI, Entergy, E.ON, Independent Sellers, 

National Grid, Progress Energy, and Scottish Power 

(citing, e.g., PUHCA 2005 §§ 1264 & 1266). 

35See, e.g., Chairman Barton Comments at 3. 

36E.g., Chairman Barton, EEI, Hawaiian Electric 

Company, Inc. (HECO), National Association of 

Regulatory Utility Commissioners (NARUC), 

National Grid, PNM, and Progress Energy. 

37E.g., American Chemistry Counsel (ACC), 

APPA/NRECA, EPSA, GE EFS, Independent Sellers, 

and Transmission Access Policy Study Group 

(TAPSG). 

having secured an order of the Commission 

authorizing it to do so. 

a. Definition of ‘‘Electric Utility 

Company’’

34. The scope of amended section 

203(a)(2) turns in large part on the 

Commission’s interpretation of the term 

‘‘electric utility company’’ which, in 

turn, affects whether an entity is a 

holding company subject to section 

203(a)(2). The FPA does not include a 

definition of ‘‘electric utility company’’

and the Commission proposed that the 

term, as used in amended section 

203(a)(2), have the same meaning as in 

PUHCA 2005, which is ‘‘any company 

that owns or operates facilities used for 

the generation, transmission, or 

distribution of electric energy for 

sale.’’ 28

i. Comments 

35. The proposed definition of 

‘‘electric utility company’’ was one of 

the most commented-on issues in the 

NOPR. While certain commenters, 

including the American Public Power 

Association and the National Rural 

Electric Cooperative Association 

(APPA/NRECA), Indiana Utility 

Regulatory Commission (Indiana 

Commission), and Southern Company 

Services, Inc. (Southern Companies), 

support the Commission’s adoption of 

the PUHCA 2005 definition of ‘‘electric 

utility company,’’ several commenters 

expressed concerns about the scope of 

the Commission’s jurisdiction under the 

proposed definition. Specifically, they 

object to the proposed definition of the 

term ‘‘electric utility company’’ or seek 

clarification as to what types of entities 

are considered ‘‘electric utility 

companies,’’ for purposes of amended 

section 203(a)(2), to determine whether 

or not they must seek section 203 

approval. 

36. Many commenters argue that 

Congress did not intend to give the 

Commission jurisdiction over 

acquisitions of foreign companies.29

Certain commenters assert that if 

Congress had intended the PUHCA 2005 

definition to apply to ‘‘electric utility 

company’’ as used in amended section 

203(a)(2), it would have said so as it did 

for the other terms listed in amended 

section 203(a)(6). They explain that, 

while the term ‘‘electric utility’’ is used 

once in amended section 203(a)(2) and 

‘‘electric utility company’’ is used twice, 

the terms should be read similarly and 

should not affect the interpretation of 

the section. Accordingly, commenters 

assert that it is reasonable to read the 

term ‘‘electric utility company,’’ not as 

used in PUHCA 2005, where the term 

includes foreign utility companies, but 

rather to have the same meaning as 

‘‘electric utility,’’ which is defined in 

the FPA as ‘‘a person or Federal or State 

agency * * * that sells electric 

energy.’’ 30 They argue that the use of 

the term ‘‘electric utility’’ in the FPA 

and in the Public Utility Regulatory 

Policies Act of 1978 (PURPA) 31 makes 

clear that ‘‘electric utilities’’ are 

domestic entities (i.e., ones selling 

electricity in the U.S.), not foreign.32

37. Similarly, EEI, Entergy, E.ON, 

PNM, and Progress Energy maintain 

that, in order to be consistent with the 

Commission’s FPA jurisdiction, the 

Commission should define an ‘‘electric 

utility company’’ as ‘‘a person that sells 

electric energy in interstate commerce.’’

Suez states that, based on an analysis of 

and the legislative purpose behind 

EPAct 2005, the Commission should 

exempt the acquisition of foreign utility 

assets by jurisdictional holding 

companies without captive customers 

by adding the word ‘‘jurisdictional’’

before ‘‘transmitting utility’’ and 

‘‘electric utility company’’ at the end of 

proposed section 33.1(a)(2). 

38. Other commenters add that the 

Commission did not have jurisdiction 

over foreign acquisitions before EPAct 

2005 and that nothing in EPAct 2005 

explicitly gives the Commission 

jurisdiction over foreign acquisitions. 

Commenters assert that Commission 

jurisdiction over foreign acquisitions is 

contrary to Congressional intent and 

poor public policy, because Commission 

review will become an impediment to 

U.S. investment in foreign entities and 

may discourage international 

investment in the U.S. utility industry.33

They assert that the Commission should 

not review the numerous and/or routine 

foreign transactions that are not 

connected to the Commission’s role of 

overseeing U.S. wholesale electric 

markets and the public interest. Certain 

commenters maintain that, at minimum, 

the Commission should exempt from 

review a holding company’s acquisition 

of a FUCO where the holding company 

has no captive U.S. ratepayers. 

39. Several commenters argue that if 

the PUHCA 2005 definition of ‘‘electric 

utility company’’ is adopted in the Final 

Rule, the definition should incorporate 

the exemptions to that definition set 

forth in the PUHCA 2005, including the 

exemption for FUCOs.34

40. As indicated above, commenters 

argue that part II of the FPA applies to 

interstate commerce; therefore, section 

203 should not be read to extend to 

transactions that are not in interstate 

commerce.35 Several commenters object 

to the proposed definition of ‘‘electric 

utility company’’ if it includes 

transactions typically reserved for state 

commission consideration (including 

transactions involving local distribution 

companies, stand-alone generation, 

retail sales and exclusively intrastate 

transactions), which the commenters 

maintain are beyond the Commission’s 

jurisdiction.36

41. Specifically, Chairman Barton 

maintains that Congress did not intend 

to give the Commission jurisdiction over 

mergers in ERCOT. EEI, as supported by 

E.ON, PNM, and Progress Energy, 

maintains that its alternative definition 

for ‘‘electric utility company,’’ which is 

‘‘a person that sells electric energy in 

interstate commerce,’’ would properly 

exclude local distribution companies 

from the Commission’s authority under 

amended section 203. 

42. Further, many commenters are 

concerned that the proposed definition 

of ‘‘electric utility company’’ applies to 

QFs.37 ACC, EPSA, GE EFS, and 

Independent Sellers ask that the 

Commission clarify that QFs continue to 

be exempt from the Commission’s 

section 203 authority. ACC asks the 

Commission to exclude QFs that are not 

affiliated with traditional utilities, 

transmission providers, or other non-QF 

power producers in order to ensure that 

the parent companies of such QFs are 

not subject to amended section 203. 

43. Similarly, EPSA, GE EFS, and 

Independent Sellers request that we 

exclude a QF’s upstream owners from 

Commission oversight under amended 

203. They state that section 210(e) of 


cchase on PROD1PC60 with RULES2
Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 1353 

38 16 U.S.C. 824a–3 (2000). Section 210(e) 

provides certain exemptions for cogeneration and 

small power producers. 39 Independent Sellers Comments at 9. 40Public Citizen Comments at 10. 41 Id. at 10–11. 

42EPAct 2005 1289(a). 43See Reiter v. Sonotone Corp., 442 U.S. 330, 339 

(1979) (finding that settled principles of statutory 

construction require giving ‘‘effect, if possible, to 

every word Congress used’’); see also 2A Statutes 

and Statutory Construction § 46.06 (N. Singer 6th 

Ed. 2000 Revision) (a statute must be construed so 

that no part will be void or insignificant). 

44Commenters’ alternative proposed definitions 

are also discussed below in the specific context of 

the requested exemptions of foreign transactions. 

45While both the FPA and PURPA contain 

definitions of ‘‘electric utility,’’ neither contains a 

definition of ‘‘electric utility company.’’

46See, e.g., Indiana Michigan Power Co. v. Dept. 

of Energy, 88 F.3d 1272, 1276 (DC Cir. 1996) 

(vacating an agency’s decision where the agency’s 

‘‘treatment of [a] statute is not an interpretation but 

a rewrite’’); United States v. Plaza Health 

Laboratories, Inc., 3 F.3d 643, 655 (2nd Cir. 1993), 

cert. denied sub nom. United States v. Villegas, 512 

U.S. 1245 (1994) (‘‘neither agencies nor courts 

should rewrite the statute to be more ‘reasonable’

* * * than Congress intended’’). 

PURPA 38 supports this finding. 

Independent Sellers also maintain that 

Congressional testimony suggests that 

amended 203(a)(2) should regulate only 

transactions of holding companies with 

public utilities in their holding 

company systems.39

44. Several commenters, including GE 

EFS and Morgan Stanley Capital Group 

Inc. (Morgan Stanley), express concern 

about whether the proposed definition 

of ‘‘electric utility company’’ includes 

EWGs. Morgan Stanley agrees with the 

use of the PUHCA 2005 definition of 

‘‘electric utility company,’’ stating that 

applying the same definition in both 

statutes accords with traditional 

principles of statutory construction. 

However, it asks the Commission to 

construe that definition consistent with 

the exemptions set forth in PUHCA 

2005; this would exempt EWGs. 45. APPA/NRECA seek clarification 

that ‘‘a State, any political subdivision 

of a State, or any agency, authority or 

instrumentality of a State or political 

subdivision of a State’’ is not an 

‘‘electric utility company’’ under 

amended section 203(a)(2). 

46. Finally, the Energy Program of 

Public Citizen, Inc. (Public Citizen) asks 

the Commission to interpret its 

jurisdiction under amended FPA section 

203 more extensively. It argues that 

certain ‘‘suspect’’ categories of utility 

owners are not addressed in the NOPR 

or in current merger policy. These 

include investment banks, electric 

equipment suppliers, natural gas system 

owners, oil companies, and construction 

and other ‘‘service’’ companies. Public 

Citizen also states that the Commission 

must formulate a policy as to how it will 

protect American ratepayers if foreign 

holding companies are allowed to 

acquire, or continue to own, U.S. public 

utilities. Public Citizen criticizes the 

SEC’s practice of allowing foreign 

holding companies to declare their own 

domestic utilities to be FUCOs under 

section 33 of PUHCA 1935, even though 

Congress did not intend to provide for 

this.40 Public Citizen asks for greater 

protections for domestic ratepayers 

given the absence of a requirement for 

‘‘registration for foreign holding 

companies and comprehensive PUHCA 

1935 regulation of their financial 

transaction with their U.S. public 

utilities.’’ 41 It also states that the 

Commission should require a strong 

showing that acquisition by a foreign 

company without any experience in 

owning utilities is consistent with the 

public interest. 

ii. Commission Determination 

47. A number of commenters make 

various arguments to support the 

contention that the term ‘‘electric utility 

company,’’ as used in amended section 

203(a)(2), should not have the same 

meaning contained in PUHCA 2005. As 

discussed in greater detail below, we 

have carefully considered this issue and 

will retain the NOPR’s proposed 

definition of the term. Additionally, we 

continue to believe that the most 

reasonable interpretation of section 

203(a)(2) is that it applies to purchases 

or acquisitions of foreign utility 

companies. However, consistent with 

Congressional intent, we do not want to 

impede foreign investments and we will 

grant blanket authorizations of foreign 

utility company acquisitions subject to 

certain conditions to protect U.S. 

captive customers. We also offer further 

clarifications below regarding the 

application of the definition of ‘‘electric 

utility company’’ in specific 

circumstances and provide blanket 

authorizations for certain transactions. 

48. As noted above, new section 

203(a)(2) provides: 

No holding company in a holding company 

system that includes a transmitting utility or 

an electric utility shall purchase, acquire, or 

take any security with a value in excess of 

$10,000,000 of, or, by any means whatsoever, 

directly or indirectly, merger or consolidate 

with, a transmitting utility, an electric utility 

company, or a holding company in a holding 

company system that includes a transmitting 

utility, or an electric utility company, with a 

value in excess of $10,000,000 * * *.42

Canons of statutory construction require 

that effect be given to every term used 

in a statute.43 In new section 203(a)(2), 

Congress uses the term ‘‘electric utility’’

(already defined in the FPA) one time, 

and the term ‘‘electric utility company’’

(undefined in the FPA, but defined in 

both PUHCA 1935 and PUHCA 2005) 

two times in the same sentence. We 

cannot ignore the fact that Congress 

used two different terms within the 

same sentence. Had Congress intended 

‘‘electric utility’’ to be used in three 

places instead of one, it would have 

done so. 

49. However, the precise meaning of 

the term ‘‘electric utility company’’ is 

not clear. It is not a defined term in the 

FPA. Amended section 203(a)(6) 

provides that certain other terms used in 

amended section 203 (‘‘associate 

company,’’ ‘‘holding company,’’ and 

‘‘holding company system’’) are to have 

the same meanings given those terms in 

PUHCA 2005, but does not address 

‘‘electric utility company.’’ Thus there is 

Congressional silence as to the meaning 

of the term. We are therefore left to 

apply a reasonable meaning to the term 

in light of the simultaneous 

amendments to FPA section 203 and 

enactment of PUHCA 2005. 

50. One of the arguments commenters 

raise in seeking an alternative definition 

of ‘‘electric utility company,’’ is that 

‘‘nothing compels’’ the Commission to 

use the PUHCA 2005 definition of the 

term.44 We agree that such a result is not 

‘‘compelled,’’ because the term is 

ambiguous. However, in determining 

what Congress might have meant by 

‘‘electric utility company,’’ the only 

reference points the Commission has in 

the context of federal electric utility 

regulatory terminology is the meaning of 

the term as used in PUHCA 1935 and in 

PUHCA 2005.45 Further, while certain 

commenters maintain that Congress 

intended to use the term ‘‘electric 

utility’’ instead of ‘‘electric utility 

company’’ in section 203(a)(2), there is 

no reliable legislative history to support 

this conclusion and, moreover, we do 

not believe that proper statutory 

construction permits us to simply 

substitute a term that Congress did not 

use.46 Additionally, as discussed below, 

substitution of the FPA term ‘‘electric 

utility’’ would not by itself resolve the 

issue as sought by commenters. 

51. We conclude that the most 

reasonable interpretation of ‘‘electric 

utility company,’’ as used in section 

203(a)(2) of the FPA, particularly in 

light of the fact that section 203(a)(2) 

will become effective simultaneous with 

the repeal of PUHCA 1935 and 

enactment of PUHCA 2005, is the 

meaning in PUHCA 2005: ‘‘any 

company that owns or operates facilities 

used for the generation, transmission, or 

distribution of electric energy for sale.’’

We also find that it is reasonable to 


cchase on PROD1PC60 with RULES2
1354 Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 

47The only legislative history on this issue is a 

colloquy between Senators Bingaman and 

Domenici, Ranking Member and Chairman, 

respectively, of the Senate Committee on Energy 

and Natural Resources. See Senate Floor Statements 

by Senators Bingaman (D–NM) and Domenici (R–

NM), H.R. 6, Energy Policy Act of 2005, 151 Cong. 

Rec. S9359 (July 29, 2005) (discussing concerns 

regarding Commission approval of certain foreign 

transactions outside of the United States). 

48EPAct 2005 § 1262(5). 

49 Id. § 1291(b)(22). 

50 In fact, the key FPA provisions in which the 

term ‘‘electric utility’’ is used are sections 210 and 

211. Section 210, both pre- and post-EPAct 2005, 

permits the Commission to order an 

interconnection with the facilities of persons that 

sell energy in interstate or intrastate commerce. The 

current interconnection between ERCOT and the 

interstate grid was pursuant to a Commission order 

under sections 210 and 211 of the FPA. See Central 

Power & Light Co., 17 FERC ¶ 61,078 (1981), order 

on reh’g, 18 FERC ¶ 61,100 (1982). Although 

commenters are correct that most of part II of the 

FPA is limited to interstate commerce, Congress has 

made specific exceptions in certain FPA provisions, 

and that includes the definition of ‘‘electric utility.’’

Cf. Indiana Michigan Power Co. v. Dept. of Energy, 

88 F.3d 1272, 1276 (DC Cir. 1996) (‘‘The [agency’s] 

treatment of this statute is not an interpretation but 

a rewrite.’’); United States v. Plaza Health 

Laboratories, Inc., 3 F.3d 643, 655 (2nd Cir. 1993) 

(stating ‘‘neither agencies nor courts should rewrite 

the statute to be more ‘reasonable’ * * * than 

Congress intended’’); Newman v. Love, 962 F.2d 

1008, 1013 (Fed. Cir. 1992) (rejecting an agency’s 

‘‘attempt to rewrite’’ a statute to contain costs or to 

avoid what it views as an inappropriate allocation 

of benefits). 

51An acquisition or merger involving ‘‘any 

company that owns or operates facilities used for 

the generation, transmission, or distribution of 

electric energy for sale’’ is not on its face limited 

to interstate facilities. 

52 Illinois Power Co., 67 FERC ¶ 61,136 (1994) 

(noting that the Commission does not have 

jurisdiction over public holding company mergers 

or consolidations, but concluding that, ordinarily, 

when public utility holding companies merge, an 

indirect merger involving their public utility 

subsidiaries also takes place, and that Commission 

approval under section 203 would be required). 

53Similarly, although not raised by commenters, 

the blanket authorization would apply to any 

organized Territory of the United States. 

interpret section 203(a)(2) as applying to 

foreign utility acquisitions, in light of 

the legitimate concern that there be 

federal oversight to ensure that U.S. 

captive customers do not crosssubsidize foreign transactions and that 

U.S. utility assets used to serve captive 

customers are not encumbered in order 

to support foreign acquisitions. The 

legislative history relevant to new 

section 203(a)(2) evidences this 

concern.47 However, the legislative 

history also makes clear that the 

provision was not intended to impede 

foreign investments, particularly where 

there are no U.S. captive customers that 

could be affected. Accordingly, we will 

interpret ‘‘electric utility company’’ to 

include foreign utility companies, but, 

as discussed infra, we will grant blanket 

authorizations for certain foreign 

acquisitions, with conditions to protect 

U.S. customers. 

52. We reject commenters’ specific 

alternatives to the proposed definition 

of ‘‘electric utility company.’’ We do not 

believe that those proposed alternative 

definitions properly resolve the issue as 

to whether amended section 203(a)(2) 

applies to acquisitions of foreign utility 

companies. As noted above, the term 

‘‘electric utility company’’ is defined in 

PUHCA 2005 as ‘‘any company that 

owns or operates facilities used for the 

generation, transmission, or distribution 

of electric energy for sale.’’ 48 In 

contrast, ‘‘electric utility’’ (which some 

commenters would have us substitute) 

is defined in the FPA, as modified by 

EPAct 2005, as ‘‘a person or Federal or 

State agency * * * that sells electric 

energy.’’ 49 Neither of these terms, on its 

face, is limited to domestic transactions 

or even to interstate transactions. 

‘‘Electric utility,’’ as defined in the FPA, 

both pre- and post-EPAct 2005, means 

persons that sell electric energy. Thus, 

we reject the argument that the 

Commission should insert the term 

‘‘electric utility’’ into section 203(a)(2) 

and then re-define it to mean persons 

that sell electric energy ‘‘in interstate 

commerce.’’ Not only has the modifier 

in ‘‘interstate commerce’’ not been 

included in the FPA definition of 

‘‘electric utility’’ either pre- or postEPAct 2005, but these commenters 

would require us to write into the 

statute words that are not there.50

53. We also reject the alternative, 

proposed by Suez, by which the 

Commission would exclude foreign 

acquisitions by jurisdictional holding 

companies without captive customers 

by adding the word ‘‘jurisdictional’’

before ‘‘transmitting utility’’ and 

‘‘electric utility company’’ at the end of 

proposed section 33.1(a)(2) (which 

reflects new section 203(a)(2)). Congress 

in other provisions of the FPA, 

including section 203, has specifically 

limited certain authorizations to 

jurisdictional facilities, but chose not to 

do so in section 203(a)(2). We do not 

believe it is appropriate to insert into 

the statute modifiers that Congress did 

not include. 

54. A number of commenters raised 

concerns about the definition of 

‘‘electric utility company’’ and the 

applicability of the Commission’s 

authority under amended section 203 to 

transactions wholly within ERCOT, 

Alaska, or Hawaii, transactions 

involving QFs, local distribution 

companies, stand-alone generation, 

retail sales and other intrastate 

transactions. Several of these 

commenters rely on the argument, as 

stated above, that Congress did not 

intend to expand significantly the 

Commission’s jurisdiction and, 

therefore, did not convey to the 

Commission jurisdiction over 

transactions typically reserved for state 

commission consideration. Others argue 

for exemptions from the definition of 

‘‘electric utility company.’’

55. While we do not believe it is 

reasonable to interpret section 203(a)(2) 

as being limited solely to holding 

company acquisitions and mergers 

involving wholesale sales or 

transmission in interstate commerce, we 

nevertheless conclude that commenters 

have raised valid concerns and that 

there would be no benefit from the 

Commission’s case-by-case evaluation of 

certain transactions under section 

203(a)(2).51

56. Our core jurisdiction under part II 

of the FPA continues to be transmission 

and sales for resale of electric energy in 

interstate commerce and we believe that 

a major impetus behind section 

203(a)(2) was to clarify the 

Commission’s jurisdiction over mergers 

of holding companies that own public 

utilities as defined in the FPA.52

However, the fact is that the language in 

section 203(a)(2) does more than 

address this issue, and we must 

implement the provision in a way that 

recognizes the expansion of authority, 

yet retains our primary focus on 

interstate wholesale energy markets and 

does not interfere unduly with historical 

state jurisdiction. Accordingly, we 

conclude that it is consistent with the 

public interest to grant blanket 

authorizations in the Final Rule for the 

following: 

(1) Section 203(a)(2) purchases or 

acquisitions by holding companies of 

companies that own, operate, or control 

facilities used solely for transmission or 

sales of electric energy in intrastate 

commerce; and 

(2) Section 203(a)(2) purchases or 

acquisitions by holding companies of 

facilities used solely for local 

distribution and/or sales at retail 

regulated by a state commission. 

57. We conclude that these blanket 

authorizations are consistent with the 

public interest for several reasons. First, 

the identified categories do not raise 

concerns with respect to competitive 

wholesale markets for sales in interstate 

commerce or protection of wholesale 

captive customers served by 

Commission-regulated public utilities—

matters within this Commission’s core 

responsibility and expertise. Second, to 

the extent these categories raise 

competitive issues in intrastate 

commerce, i.e., in ERCOT, Hawaii, and 

Alaska,53 those issues are within the 


cchase on PROD1PC60 with RULES2
Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 1355 

54While QFs themselves currently are exempt 

from section 203’s filing requirements by virtue of 

the Commission’s PURPA regulations, PURPA does 

not give us authority to exempt holding companies 

that own QFs. 

55We note that a holding company acquisition of 

securities of an EWG would in some circumstances 

trigger section 203 review in any event by virtue of 

section 203(a)(1). This is because the EWG could 

well be a public utility and, to the extent the 

holding company acquired ‘‘control’’ of the EWG, 

we would construe the EWG to be ‘‘disposing’’ of 

its jurisdictional facilities and thus required to file 

for approval under section 203(a). A similar 

situation involving acquisition of securities of a QF 

would not trigger section 203 review, since QFs 

currently are exempted from FPA section 203 filing 

requirements by the Commission’s PURPA 

regulations. 

56See, e.g., GE EFS and Independent Sellers. 

57 16 U.S.C. 796 (2000). 

58NOPR at P 38 (citing EPAct 2005 

1291(b)(1)(B)(23)). 

59 Id. at P 39 (citing EPAct 2005 1262(2), (8), & 

(9)). 

60E.g., GE EFS, HECO, Independent Sellers, and 

the Electricity Consumers Resource Council, the 

American Iron and Steel Institute, the American 

Chemistry Council, and the PJM Industrial 

Customer Coalition (collectively, Industrial 

Consumers). 

expertise of, and more appropriately 

addressed by, state commissions. Third, 

to the extent retail competition and 

retail ratepayer protection issues are 

raised by a holding company acquisition 

of local distribution or other retail 

facilities, these issues also are within 

the expertise of, and more appropriately 

addressed by, state commissions. We 

will thus grant the identified blanket 

authorizations and not impose any type 

of filing requirement with respect to 

such transactions. 

58. In response to the request of 

APPA/NRECA that we clarify that ‘‘a 

State, any political subdivision of a 

State, or any agency, authority or 

instrumentality of a State or political 

subdivision of a State’’ is not an 

‘‘electric utility company’’ under 

amended section 203(a)(2), and 

therefore, not subject to amended 

section 203, we clarify that even if a 

governmental entity were to meet the 

definitions of ‘‘electric utility company’’

or ‘‘holding company,’’ section 203(a)(2) 

would not impose on the governmental 

entity any filing requirements under 

section 203. This is discussed in further 

detail infra. However, if a nongovernmental public utility holding 

company were to seek to acquire a 

governmental utility (e.g., a municipal 

utility) that owns interstate transmission 

facilities or facilities used for wholesale 

sales in interstate commerce (and thus 

meets the definitions of ‘‘electric utility 

company’’), and turn it into a private 

company subsidiary, then section 

203(a)(2) should apply to the public 

utility holding company’s acquisition. 

While no section 203 filing requirement 

would be imposed on the governmental 

entity, it would be imposed on the 

private entity. 

59. We reject commenters’ request 

that we explicitly exclude QFs and 

EWGs from the definition of ‘‘electric 

utility company.’’ Regardless of their 

status under PUHCA 2005, the 

exemptions set forth under PUHCA 

2005 are not dispositive as to the scope 

of the Commission’s amended FPA 

section 203 authority. These PUHCA 

2005 exemptions are set forth in the 

context of federal access to books and 

records and, more importantly, unlike 

PUHCA 2005, FPA section 203 does not 

give us any express authority to exempt 

persons or classes of transactions.54

60. Additionally, were the 

Commission to interpret ‘‘electric utility 

company’’ for purposes of FPA section 

203(a)(2) not to include EWGs or QFs, 

this could preclude review of certain 

acquisitions of securities of EWGs or 

QFs even by holding companies whose 

systems contain traditional public 

utilities with transmission facilities 

and/or captive customers. We do not 

believe that such transactions should be 

excluded from review under section 203 

and conclude that it is reasonable to 

interpret the statute not to exclude 

them.55 We recognize the arguments of 

some commenters that we should not 

apply section 203(a)(2) to holding 

company acquisitions of securities of 

EWGs and QFs, or at a minimum should 

not apply it to such acquisitions by 

holding companies that are holding 

companies solely by virtue of owning or 

controlling one or more EWGs, FUCOs, 

or QFs, because it would impede 

investments in QFs and EWGs or result 

in unnecessary regulation of upstream 

owners of QFs and EWGs.56 In response, 

we believe 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 the 

concerns raised. To the extent 

additional blanket authorizations are 

needed or appropriate, we will consider 

those on a case-by-case basis. 

61. Public Citizen makes broad 

comments on the scope of the 

Commission’s jurisdiction and the 

standards articulated in the 

Commission’s existing merger policy. 

We reject the request that we treat 

various types of utility owners or 

transactions as ‘‘suspect.’’ As discussed 

below, the Commission is adopting the 

definition of ‘‘holding company’’ as 

required by amended section 203(a)(6), 

and is adopting a definition of ‘‘electric 

utility company’’ that is reasonable, in 

light of the statutory construction of 

amended section 203 and Congressional 

silence. We note that several of the 

scenarios discussed by Public Citizen in 

its comments fall under the 

Commission’s amended section 203 

authority, as clarified herein. As with all 

such transactions under its review, the 

Commission will carefully examine the 

proposed transaction to ensure it is 

consistent with the public interest. 

Moreover, Public Citizen will have an 

opportunity to present its concerns in 

these specific cases. 

b. Definitions of ‘‘Associate Company,’’

‘‘Holding Company,’’ ‘‘Holding 

Company System,’’ and ‘‘Transmitting 

Utility’’

62. In the NOPR, the Commission 

explained that the term ‘‘transmitting 

utility’’ is already defined in amended 

section 3 of the FPA 57 as ‘‘an entity 

(including an entity described in section 

201(f)) that owns, operates, or controls 

facilities used for the transmission of 

electric energy—(A) in interstate 

commerce; (B) for the sale of electric 

energy at wholesale.’’ 58

63. The Commission also proposed 

that, consistent with amended section 

203(a)(6), the terms ‘‘associate 

company,’’ ‘‘holding company,’’ and 

‘‘holding company system’’ shall have 

the meaning given those terms in 

PUHCA 2005.59

i. Comments 

64. No comments were filed 

specifically in response to these 

proposed definitions of ‘‘transmitting 

utility,’’ ‘‘associate company,’’ or 

‘‘holding company system.’’ However, 

several commenters object to the 

proposed definition of ‘‘holding 

company’’ or seek exemption from that 

definition for purposes of amended 

section 203(a)(2). They seek to limit the 

scope of the Commission’s definition of 

‘‘holding company.’’ 60 Amended 

section 203(a)(2) provides explicitly, for 

the first time, that ‘‘holding companies’’

must seek Commission approval prior to 

certain mergers and acquisitions. 

Commenters seek clarification as to the 

types of entities that meet the definition 

of ‘‘holding company’’ to confirm 

whether or not they will be subject to 

this new filing requirement. 

65. GE EFS asks the Commission to 

construe the term ‘‘holding company’’ to 

include only companies that own 

traditional utilities and that would have 

been deemed to be holding companies 

under PUHCA 1935. This would 

exclude companies that are holding 

companies only by virtue of owning 

QFs, EWGs, or FUCOs. Industrial 


cchase on PROD1PC60 with RULES2
1356 Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 

61 Industrial Consumers Comments at 6. 

62APPA/NRECA Comments at 18. 

63We note that, prior to EPAct 2005, the FPA 

term ‘‘transmitting utility’’ was not limited to 

entities that own or operate transmission facilities 

used ‘‘in interstate commerce.’’ EPAct 2005, 

however, modified the definition to, among other 

things, limit it to facilities used in interstate 

commerce. 64EPAct 2005 1262(8). 

65 16 U.S.C. 824(f) (2000). 

66 7 U.S.C. 901 et seq. 

67NOPR at P 37. 

Consumers also seek to limit the 

definition of ‘‘holding company,’’ asking 

the Commission to clarify that 

‘‘industrials and other entities whose 

on-site generation investment meets the 

statutory definition of EWGs’ are not 

included in the definition.61

Independent Sellers asks the 

Commission to confirm that a ‘‘holding 

company,’’ for purposes of amended 

section 203(a), does not include entities 

owning new electric generation facilities 

that have not yet begun commercial 

operation. 

66. APPA/NRECA seek clarification 

that ‘‘a State, any political subdivision 

of a State, or any agency, authority or 

instrumentality of a State or political 

subdivision of a State,’’ does not meet 

the definition of ‘‘holding company.’’ 62

It also seeks clarification that rural 

electric cooperatives are not ‘‘holding 

companies’’ under amended section 

203(a)(2). 

67. HECO seeks clarification that an 

entity that meets the definition of 

holding company for purposes of 

section 203(a)(2) solely because it is the 

upstream owner of an electric utility 

company that is not a public utility 

under FPA, and that is not otherwise 

subject to Commission jurisdiction 

under any other provision of part II of 

the FPA, will not be subject to the 

Commission’s merger authority. HECO 

explains that this would exclude from 

the Commission’s jurisdiction under 

section 203(a)(2) acquisitions of holding 

companies with subsidiaries located 

only in Hawaii, Alaska, ERCOT, and 

foreign countries. HECO contends that 

Commission oversight of holding 

company acquisitions in this context is 

not necessary to protect the public 

interest. 

ii. Commission Determination 

68. Because the term ‘‘transmitting 

utility’’ is already defined in amended 

section 3 of the FPA and amended 

section 203(a)(6) provides that the terms 

‘‘associated company’’ and ‘‘holding 

company system’’ shall have the 

meaning provided in PUHCA 2005, the 

Final Rule adopts them, as set forth in 

the NOPR.63 We also note that no 

commenters oppose these proposed 

definitions. 

69. The Final Rule also adopts the 

NOPR’s proposed definition of the term 

‘‘holding company.’’ Amended section 

203(a)(6) mandates that the term 

‘‘holding company’’ shall have the 

meaning provided in PUHCA 2005. This 

statutory directive is unambiguous. 

70. The Commission therefore rejects 

requests for clarification that only 

companies that own traditional utilities, 

and not those that own solely FUCOs, 

EWGs and/or QFs, should be deemed 

‘‘holding companies’’ under amended 

section 203. ‘‘Holding Company’’ in 

PUHCA 2005, as reflected in the rules 

adopted herein, means ‘‘any company 

that directly or indirectly owns, 

controls, or holds, with the power to 

vote, 10 percent or more of the 

outstanding voting securities of a public 

utility company or of a holding 

company of any public utility company; 

***’’ 64 There is no limitation within 

the plain words of this definition that 

can be read to exclude holding 

companies that own or control EWGs, 

FUCOs, or QFs. Additionally, even 

under PUHCA 2005, persons that own 

or control only EWGs, FUCOs, or QFs 

are considered holding companies but 

are explicitly exempted from PUHCA 

2005 by section 1266. There is no 

similar exemption in amended section 

203 and we conclude that it is 

reasonable to interpret section 203(a)(2) 

review to include acquisitions of 

generation or transmission facilities or 

companies by holding companies 

owning only FUCOs, QFs, and/or EWGs. 

71. In response to the clarification 

sought by HECO, as indicated above, 

amended section 203(a)(6) mandates the 

adoption of the PUHCA 2005 definition 

of ‘‘holding company.’’ That definition 

includes the upstream owners of an 

electric utility company that is not a 

public utility under the FPA and that is 

not otherwise subject to Commission 

ratemaking jurisdiction under part II of 

the FPA. As discussed above regarding 

the definition of ‘‘electric utility 

company,’’ we have concluded that this 

definition is not limited to interstate 

commerce. Therefore, holding 

companies that own ‘‘electric utility 

companies’’ whose businesses are solely 

intrastate technically fall under 

amended section 203(a)(2). However, we 

agree that reviewing transactions 

involving Hawaii, Alaska, and ERCOT 

would involve matters outside our 

expertise and the core focus of part II of 

the FPA, and therefore we have granted 

blanket authorizations, as discussed 

above. 

72. As requested by Independent 

Sellers, we clarify that a ‘‘holding 

company,’’ for purposes of amended 

section 203(a), does not include entities 

owning new electric generation that 

have not yet begun commercial 

operation. 

73. We grant APPA/NRECA’s request 

that the Commission clarify that a state 

or any political subdivision of a state or 

agency thereof is not a ‘‘holding 

company’’ under amended section 

203(a)(2). While the definition of 

holding company possibly could be 

construed to include governmental 

entities or electric power cooperatives, 

we believe a more reasonable 

interpretation is that Congress did not 

intend to give the Commission authority 

over acquisitions by such entities. 

Section 201(f) of the FPA 65 excludes 

from most FPA part II provisions 

governmental entities and electric 

power cooperatives financed by the 

Rural Electrification Act of 1936,66 and 

there is no indication that Congress 

intended to impose any section 203 

filing requirements on such entities. 

Accordingly, we will not interpret 

section 203(a)(2) to apply to 

governmental entities and electric 

power cooperatives. 

3. Section 33.1(b)—Definition of 

‘‘Existing Generation Facility’’

74. The Commission proposed that 

subsection 33.1(b) would define 

‘‘existing generation facility’’ for section 

203 purposes as a generation facility 

that is operational at the time the 

transaction is consummated.67 The 

Commission stated that, as reflected in 

proposed section 33.1(a)(1)(iv)(b), if 

such a generation facility is intended to 

be used in whole or in part for 

wholesale sales in interstate commerce 

by a public utility, it is subject to our 

jurisdiction for ratemaking purposes 

and thus is covered under amended 

section 203(a)(1)(D). The Commission 

explained that, although the statute 

refers to a facility that ‘‘is’’ used for 

wholesale sales (and over which the 

Commission has jurisdiction for 

ratemaking purposes), we believed that 

a reasonable interpretation is that the 

provision would apply to newly 

constructed facilities that have already 

been energized at the time the 

transaction is consummated and are 

intended to be used in whole or in part 

for wholesale sales in interstate 

commerce by public utilities. The 

Commission also noted that if it can be 

demonstrated that a facility is used 

exclusively for retail sales, then 

amended section 203(a)(1)(D) does not 

apply. 


cchase on PROD1PC60 with RULES2
Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 1357 

68 16 U.S.C. 824d (2000). 

69 16 U.S.C. 824e (2000). 

a. Comments 

75. The definition of ‘‘existing 

generation facility’’ drew extensive 

comment from state regulatory 

commissions, traditional public 

utilities, public/cooperative entities and 

retail customer and other groups. 

76. One comment raised by EEI and 

Progress Energy is that the Commission 

should construe the term ‘‘existing’’ to 

mean only facilities that existed as of 

the date of enactment of EPAct 2005 

(August 8, 2005). They claim that had 

Congress meant to apply amended 

section 203 to facilities that become 

operational after August 8, 2005, it 

would have used different language. 

APPA/NRECA takes the decidedly 

opposite view that applying amended 

section 203 only to facilities that existed 

when EPAct 2005 was enacted would 

eventually mean the demise of section 

203 review, without any indication that 

Congress intended such a result. 

77. Most commenters focused on the 

term ‘‘existing’’ in its operational and 

temporal context, as reflected in the 

NOPR’s proposal to assert jurisdiction 

over transfers of facilities that ‘‘are 

operational at the time the transaction is 

consummated.’’ Commenters generally 

focused on whether the facilities are in 

the construction or development stage, 

at or near ‘‘operation,’’ or in retired or 

mothballed status. Contrary to most 

commenters, Kentucky Public Service 

Commission (Kentucky Commission) 

and National Association of State Utility 

Consumer Advocates (NASUCA) would 

have the Commission assert jurisdiction 

over transfers of facilities that are under 

construction or development. NASUCA 

argues that section 203 should apply if 

the facilities have received any kind of 

federal or state permit or have applied 

for market-based rate authority or 

generator interconnection status with an 

independent system operator (ISO) or 

regional transmission organization 

(RTO). It contends that such facilities 

are already influencing the market, 

particularly if they are being sold to 

provide future capacity or ancillary 

services. By the same token, NASUCA 

and TAPSG want us to assert 

jurisdiction over transfers of units that 

are mothballed or retired, especially if 

the units can be brought back on line 

and retain the permits or authorities. 

FirstEnergy Service Company 

(FirstEnergy) recommends that the 

Commission clarify its rules to deal with 

a mothballed facility that is slated to be 

refurbished and with a facility that is 

shut down where the site and 

equipment has been sold. Neither 

FirstEnergy nor Progress Energy believe 

that section 203 should apply to 

transfers of facilities removed from 

service and from the Commission’s 

accounting and thus are not physically 

or otherwise capable of making 

wholesale sales. 

78. Although all commenters agree 

that section 203 review should 

encompass facilities that are 

‘‘operational,’’ they disagree as to how 

to define ‘‘operational’’ and ‘‘ability to 

make sales.’’ They also disagree as to the 

point in time at which a jurisdictional 

determination is to be made, 

particularly for substantially completed 

plants that are at or near the 

‘‘operational stage.’’ APPA/NRECA 

finds the Commission’s proposed 

approach reasonable, but is concerned 

that defining a facility on the basis of 

whether the facility is energized may 

allow companies to evade section 203 

by delaying the interconnection process. 

NASUCA shares this concern, asserting 

that whether the plant is producing 

electricity at the time of the transaction 

is irrelevant to whether section 203 

jurisdiction should apply. NARUC, 

Progress Energy, and Southern 

Companies take the view that for a 

generation facility to be deemed 

‘‘operational,’’ it must be interconnected 

and synchronized with the system so 

that it is capable of making wholesale 

sales. Other commenters suggest that a 

facility actually be in service and 

making jurisdictional sales. Most 

commenters agree with the 

Commission’s proposal that the 

jurisdictional determination should be 

made on the basis of whether the facility 

is operational, or is projected to be 

operational when the transaction is (or 

is expected) to be consummated. 

NARUC, however, suggests that the 

jurisdictional determination should be 

made on the basis of whether the facility 

is operational at the time the underlying 

transaction agreement has been entered 

into and submitted for Commission 

approval. 

79. Wisconsin Electric Power 

Company (Wisconsin Electric) expresses 

concern regarding the application of the 

term ‘‘operational.’’ It requests that the 

Commission clarify either that 

‘‘consummated’’ refers to when the 

transaction, as defined by the lease and 

associated commitments, is executed or 

that ‘‘operational’’ is restricted to 

operations in the ordinary course of the 

business of the non-acquiring party. 

80. EEI and Ameren Services 

Company (Ameren) argue that the 

‘‘intent’’ language in proposed section 

33.1(a)(1)(iv)(b) exceeds the statutory 

authority of amended section 

203(a)(1)(D)(ii). They also insist that an 

‘‘intent’’ standard is unworkable 

because ‘‘intent’’ would be difficult to 

ascertain. Southern is also concerned 

that the ‘‘intent’’ language would 

introduce confusion as to the 

jurisdictional status of transfers of 

facilities that are merely under 

construction. Chairman Barton 

questions whether requiring only an 

intent to use facilities in interstate 

commerce will unduly burden potential 

transactions and results in unnecessary 

review, particularly when, after the 

facilities are placed in service, the 

Commission has authority under FPA 

sections 205 68 and 206 69 over the 

facility and its rates. Although not 

specifically referring to either the 

‘‘intent’’ language or the ‘‘exclusive use 

for retail sales’’ language, the North 

Carolina Utilities Commission (North 

Carolina Commission) emphasizes that 

nothing in amended section 203(a)(1)(D) 

expands the Commission’s jurisdiction 

to include generation resource adequacy 

for retail service; EPAct 2005 expressly 

reserves authority over generation 

resource adequacy to the states. It urges 

that the final rule recognize this 

limitation. 

81. Other commenters, such as Utility 

Workers Union of America, AFL–CIO 

(UWUA) and APPA/NRECA, generally 

support the ‘‘intent’’ language. APPA/ 

NRECA and TAPSG, however, believe 

that a very high standard should be set 

for demonstrating that a facility is 

exclusively used for retail sales. TAPSG 

points out that utilities do not ordinarily 

dispatch their units separately for 

wholesale sales and retail sales. Both 

commenters also contend that amended 

section 203 should apply to facilities 

that received an exemption initially 

from section 203 on the basis of retail 

use only but that later are used for 

wholesale sales. Owners of such 

facilities should be subject to the 

Commission’s expanded penalty 

authority. APPA/NRECA and TAPSG 

argue that the Commission should 

explicitly state that section 203 approval 

is required for the acquisition of a QF; 

they ask us to clarify that QFs may be 

‘‘existing generation facilities’’ under 

amended section 203(a)(1)(D). 

b. Commission Determination 

82. The Commission will clarify and 

modify a number of aspects of its 

proposal for determining whether a 

generation facility is an existing 

generation facility for purposes of 

amended section 203(a)(1)(D). We will 

also address other questions raised by 

commenters with regard to the NOPR. 

83. Initially, the Commission will 

reject EEI’s and Progress Energy’s 


cchase on PROD1PC60 with RULES2
1358 Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 

70See, e.g., Senate Floor Statement by Senator 

Bingaman (D–NM), H.R. 6, Energy Policy Act of 

2005, Congressional Record at S9258 (July 28, 2005) 

(stating that ‘‘in the area of electric utility mergers, 

we have expanded the jurisdiction of [the 

Commission] over mergers involving existing 

generation plants; that is, plants that are in 

existence at the time the merger takes place.’’). 

71NOPR at P 44. 

72These are examples only. This list is not 

intended to be exhaustive. 

73E.g., APPA/NRECA, Indiana Commission, 

Kentucky Commission, NARUC, NASUCA, and 

New Jersey Board of Public Utilities (New Jersey 

Board). 

argument that ‘‘existing generation 

facility’’ should be construed to 

encompass only those generation 

facilities in existence as of the date of 

enactment of EPAct 2005 (i.e., August 8, 

2005). They submit that any other 

interpretation would effectively write 

‘‘existing’’ out of the statute and that if 

Congress had intended amended section 

203 to apply to generation facilities that 

come into existence after August 8, 

2005, it would have used plainly 

different language. We do not agree. 

First, such an interpretation is not, as 

Progress Energy suggests, required as a 

textual matter. Congress could have, but 

chose not to, use the term ‘‘existing on 

the effective date of this Act.’’ Rather, it 

simply used the term ‘‘existing.’’

Second, such an interpretation would 

make little sense. It would eventually 

write amended section 203(a)(1)(D) out 

of existence as pre-EPAct 2005 

generation facilities are retired and only 

post-EPAct 2005 generation facilities 

remain. There is only a brief mention of 

the term ‘‘existing,’’ without any 

explanation, in the legislative history of 

amended section 203. However, the 

legislative history suggests that Congress 

intended for the Commission to not only 

continue, but to expand our review of 

activities that would affect wholesale 

competition and ratepayers.70

Therefore, we reject EEI’s and Progress 

Energy’s argument. 

84. The Commission adopts the 

NOPR’s proposal that an ‘‘existing 

generation facility’’ is a generation 

facility that is operational at or before 

the time the transaction is 

consummated. However, we are deleting 

language in proposed section 

33.1(a)(iv)(b) stating that section 203 

applies if the generation facility ‘‘is 

intended to be used’’ in whole or in part 

for wholesale sales in interstate 

commerce by a public utility. Below we 

explain various aspects of this 

definition. 

85. We note first that ‘‘the time the 

transaction is consummated’’ refers to 

the point in time when the transaction 

actually closes and control of the facility 

changes hands. The Commission will 

construe ‘‘operational’’ to mean a 

generation facility for which 

construction is complete (i.e., it is 

capable of producing power). An 

‘‘existing generation facility’’ would not 

include generation plants that are only 

in the development or construction 

stage. However, an ‘‘existing generation 

facility’’ would include a mothballed 

facility, so long as the facility was 

operational at any time before the 

transaction is consummated. 

86. With regard to the issue of 

wholesale versus retail sales, the 

Commission will eliminate the language 

‘‘intended to be’’ from proposed section 

33.1(a)(1)(iv)(b). We agree with some 

commenters that ‘‘intent’’ is difficult to 

discern and could introduce 

unnecessary confusion about plants that 

are under construction and clearly not 

being used for wholesale sales. Rather, 

the Commission will adopt a rebuttable 

presumption that amended 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. In our 

experience, utilities do not ordinarily 

separate the dispatch of their plants for 

retail sales and wholesale sales; rather, 

they dispatch all their units on an 

integrated basis to serve all load (retail 

and wholesale). Therefore a utility 

proposing an unusual procedure by 

which it dispatches certain plants 

‘‘only’’ for retail load will have the 

burden to demonstrate that any 

particular generating facility will never 

be used to make wholesale sales. 

87. Finally, in response to 

commenters’ requests that section 203 

approval be required for the acquisition 

of a QF, we clarify that if a public utility 

acquires an existing generation facility 

used for Commission-jurisdictional 

sales, whether a QF or any other type of 

generation facility, the transaction is 

subject to section 203. Although certain 

QFs themselves are exempted from any 

filing requirements under section 203 by 

virtue of our PURPA regulations, this 

does not mean that public utilities that 

acquire QFs are exempt. Additionally, 

there is no limitation in amended 

section 203(a)(1)(D) on the type of 

generation facilities that trigger section 

203 review, if they are used for 

interstate wholesale sales and the 

Commission has jurisdiction over them 

for ratemaking purposes. Further, even 

if the Commission had the discretion to 

exempt QF acquisitions from section 

203 review, we do not think it would be 

necessarily consistent with the public 

interest to do so in light of EPAct 2005’s 

elimination of QF ownership 

restrictions. 

4. Section 33.1(b)—Definition of ‘‘NonUtility Associate Company’’

88. The Commission proposed to 

interpret the term ‘‘non-utility associate 

company’’ to mean 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.71 Therefore, we proposed 

that a non-utility associate company 

would include, for example, a power 

marketer, a generator that does not have 

captive customers, a gas marketer, a fuel 

supply company or other company that 

provides inputs to power production, or 

a company that is involved in business 

activities not related to the generation, 

transmission, distribution, or sale of 

electricity.72 This definition is relevant 

because of the new section 203(a)(4) 

requirement that we find that a 

proposed transaction does not result in 

inappropriate cross-subsidization or 

pledge or encumbrance of utility assets. 

The Commission sought comment on 

whether it should use a narrower 

definition, for example, whether we 

should define a ‘‘non-utility associate 

company’’ as a company that is in a 

business not related to the generation, 

transmission, distribution, or sale of 

electricity. 

a. Comments 

89. Many state commissions and other 

commenters from the industry agree that 

the Commission’s proposed broad 

definition of ‘‘non-utility associate 

company’’ should be adopted in order to 

afford the greatest protection against 

cross-subsidization, as Congress 

intended in EPAct 2005.73 Indiana 

Commission and NARUC explain that 

the cross-subsidization of an entity 

involved in a business unrelated to the 

electric industry and the crosssubsidization of an entity involved in 

‘‘unregulated,’’ electricity-related 

activities are equally inappropriate. On 

the other hand, FirstEnergy and 

Southern Companies urge the 

Commission to adopt the narrower 

definition. 

90. American Electric Power Service 

Corporation (AEP) asserts that both the 

Commission’s broader definition 

proposed in the NOPR and the narrower 

definition (proposed as an alternative) 

are unnecessarily broad, ensnaring 

companies that are providing essentially 

ancillary services to the regulated utility 

and that thus present no risk of crosssubsidization. AEP maintains that 

amended section 203(a)(4) is simply 

designed to ensure that a transaction 

does not result in cross-subsidization, 


cchase on PROD1PC60 with RULES2
Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 1359 

74 18 CFR part 358 (2005). 

75NOPR at P 42. 

76 18 CFR 358.3(d). 

77 18 CFR 33.1(b) (2005). 

78NOPR at P 30. 

79 Id. at P 32. 

80 Id. at P 33. 

81Chairman Barton does not take a position on 

the appropriate measure of value, but believes that 

the Commission should consider whether the use 

of market value, by bringing more transactions 

under section 203, will unnecessarily increase 

regulatory burden because of the potential for 

disputes concerning the market value of 

transactions. He also suggests that some utilities 

will make section 203 filings needlessly to show the 

Commission that section 203 does not apply. He 

notes that undepreciated original cost value is a 

simple way to value transactions. Chairman Barton 

Comments at 6. 

which, by definition, only occurs when 

a competitive affiliate of the utility is 

unduly enriched by use of regulated 

assets. AEP states that the Commission 

has already defined these energy 

affiliate companies in the Standards of 

Conduct,74 and states that we should 

define a ‘‘non-utility associate 

company’’ by adopting the same 

definition used to describe an ‘‘energy 

affiliate’’ in 18 CFR 358.3(d). 

b. Commission Determination 

91. We agree with the majority of the 

commenters that the NOPR’s proposed 

broader definition of the term ‘‘nonutility associate company’’ is 

reasonable. Our goal in defining this 

term is to ensure that public utilities 

with captive customers do not crosssubsidize ‘‘non-regulated’’ associate 

companies, i.e., companies that are not 

subject to traditional cost-based 

regulation.75 As it relates to this 

objective, there is no difference between 

the propriety of cross-subsidizing 

associate energy companies that are not 

subject to traditional cost-based 

regulation versus an entity that is 

involved in a business completely 

unrelated to the energy industry. Since 

the purpose is to protect customers, 

whether the company inappropriately 

subsidized is an associate company in 

the energy industry or not is irrelevant. 

92. We disagree with AEP’s 

contention that cross-subsidization 

occurs only when using traditionally 

regulated assets to subsidize a 

competitive affiliate of the utility 

company. Congress was concerned with 

the potential for abuse when a 

traditionally regulated public utility 

(i.e., one that is subject to the 

Commission’s traditional cost-based 

regulation) subsidizes an ‘‘unregulated’’

affiliate company within the same 

holding company system. Defining a 

non-utility associate company based on 

whether or not that ‘‘unregulated’’

affiliate company is a competitor of the 

utility company is too narrow to prevent 

abuses; consequently, the Standards of 

Conduct definition of an ‘‘energy 

affiliate’’ is not appropriate here.76

93. Accordingly, we will adopt the 

broader definition of a ‘‘non-utility 

associate company,’’ which is 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. A nonutility associate company would 

include, among others, a power 

marketer, a generator that does not have 

captive customers, a gas marketer, a fuel 

supply company or company that 

provides inputs to power production, or 

a company that is involved in business 

activities not related to the generation, 

transmission, distribution or sale of 

electricity. 

5. Section 33.1(b)—Definition of 

‘‘Value’’

94. In the NOPR, the Commission 

proposed to generally rely on a ‘‘market 

value’’ approach for determining 

whether asset transfers, with the 

exception of wholesale contracts, meet 

the value threshold necessary to require 

approval under amended section 203. 

This would base value on expected 

future earnings or profits over the life of 

the asset. This is in contrast to our 

current regulations, which define value 

as original cost undepreciated as 

defined in the Commission’s Uniform 

System of Accounts; in other words the 

amount paid for installing an original 

plant and equipment and additions 

thereto.77 As described below, the 

Commission proposed certain measures 

of value for each of four types of asset 

transactions, inviting comment and 

suggestions for alternative approaches. 

95. Specifically, the Commission 

proposed that section 33.1(b) would 

define ‘‘value,’’ as applied to 

jurisdictional facilities and existing 

generation facilities (addressed by 

amended subsections 203(a)(1)(A) and 

(D)), as the market value of such 

facilities.78 The Commission recognized 

that determining the market value of 

transmission facilities could be difficult 

in some instances. We proposed that, in 

the absence of a readily ascertainable 

market value, original cost 

undepreciated would be used. For 

transactions involving transfers of 

facilities between non-affiliates, the 

Commission stated that market value 

will, in most circumstances, be reflected 

in the transaction price. For transactions 

between affiliates, the Commission 

recognized that we cannot assume that 

market value will be reflected in 

transaction price. We suggested 

undepreciated original cost as a possible 

alternative measure of value. 

96. The Commission also proposed 

that section 33.1(b) would define 

‘‘value,’’ with respect to a merger or 

consolidation 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, 

as used in amended section 203(a)(2)) as 

‘‘market value.’’ We stated that in most 

instances market value would be 

reflected in the transaction price for 

transactions between non-affiliates. 

97. Turning to how to value paper 

jurisdictional facilities, the Commission 

proposed that the value of any 

wholesale contract included in the 

transaction would be based on total 

expected contract revenues over the 

remaining life of the contract.79 We 

noted that market value was an 

alternative approach and that it could be 

based on the price or consideration paid 

for the contract. 

98. The Commission proposed to 

define the ‘‘value’’ of a security, as 

discussed in amended sections 

203(a)(1)(C) and (a)(2), as the market 

price at the time the security is 

acquired.80 For transactions between 

non-affiliated companies, the 

Commission proposed to rebuttably 

presume that the market value is the 

agreed-upon transaction price. We 

sought comments on how to determine 

value for security transactions involving 

affiliates if the securities are not widely 

traded. Further, the Commission sought 

comments as to whether it should give 

particular weight to evidence of nonaffiliate transactions involving either 

non-affiliated buyers or sellers of 

securities of similarly situated utilities 

or assets. 

a. Comments on Definition of ‘‘Value’’

as Applied to Transmission and 

Generation Facilities 

99. Nearly all commenters support the 

use of market value. Most commenters 

support using transaction price to 

measure market value in most 

situations.81

100. APPA/NRECA and TAPSG 

contend that market value should be 

replaced by ‘‘fair’’ market value. They 

recommend that the Commission 

measure ‘‘fair’’ market value based on 

standards to be adopted by the Financial 

Accounting Standards Board that use 

both a market approach and an income 

approach. Because the market value 

standard could introduce some 


cchase on PROD1PC60 with RULES2
1360 Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 

82Boston Edison Co. Re: Edgar Electric Energy 

Co., 55 FERC ¶ 61,382 (1991) (Edgar). The Edgar 

standard of review is designed to prevent affiliate 

abuse and to ensure prices that are consistent with 

competitive outcomes. 

83E.g., Indiana Commission, Kentucky 

Commission, New Jersey Board, International 

Transmission Company (International 

Transmission), EPSA, Scottish Power, TAPSG, and 

UWUA. 

84E.g., EEI, Duke/Cinergy, TAPSO, Indiana 

Commission, Kentucky Commission, Progress 

Energy, and Scottish Power. 

85E.g., EEI, Ameren, Progress Energy, Southern 

Companies, and Duke/Cinergy. 

86NARUC, Missouri Commission, the Public 

Utilities Commission of Ohio (Ohio Commission), 

APPA/NRECA, NASUCA, and Constellation Energy 

Group Inc. (Constellation). 

uncertainty into the process, FirstEnergy 

urges the Commission to provide clear 

guidance to the industry and the 

investment community explaining how 

a market value standard would be used 

in certain situations. It suggests that we 

create a ‘‘safe harbor’’ that clearly 

defines methods and components used 

to assess market value. EEI argues that 

when a state commission has reviewed 

or made a determination of value for a 

particular transaction, a company 

should be able to rely on that value for 

purposes of determining value under 

section 203; the company should not 

have to pay penalties if the Commission 

later determines that the value of the 

transaction exceeds $10 million. 

101. Virtually all commenters 

recognize that a market value standard, 

particularly one based on transaction 

price, may need to be modified or even 

replaced in some circumstances. As 

explained below, these circumstances 

involve transactions that include nonjurisdictional facilities in addition to 

jurisdictional facilities or generation 

facilities; transactions where market 

value may not be ascertainable; and 

transactions not conducted at arms’- 

length (such as affiliate transactions). 

Alternative suggested measures of 

market value or value are the following: 

(1) Market value as determined by 

market-based results of an Edgar-type 

analysis 82 or independent valuation 

process; (2) original cost undepreciated; 

(3) the higher of market value or original 

cost undepreciated; and (4) net book 

value (original cost depreciated). 

102. Focusing first on transactions 

between non-affiliates, many 

commenters agree that, in most 

circumstances, transaction price is the 

appropriate measure of market value.83

EEI, Duke Energy Corporation and 

Cinergy Corp. (Duke/Cinergy), and 

Progress Energy urge the Commission to 

rebuttably presume that market value is 

the agreed-on transaction price. EEI, 

Duke/Cinergy, Entergy, and FirstEnergy, 

argue that the market value 

determination should be based only on 

the value of jurisdictional transmission 

assets or generation assets. They state 

that a single transaction price will not 

measure the market value for a 

transaction that also includes assets 

other than jurisdictional transmission 

assets or generation assets. EEI proposes 

determining the transaction price for the 

jurisdictional transmission facilities or 

generation facilities based on their 

relative net book value (original cost 

depreciated). 

103. Commenters differ significantly 

as to the appropriate measure of value 

where the transaction is between 

affiliates. As a first backstop in 

scenarios involving affiliated 

transactions, several commenters 

contend that transaction price is still a 

reasonable measure of market value, 

provided that the transaction price is 

shown to be consistent with the results 

of an Edgar-type analysis or 

independent valuation process.84

However, other commenters, including 

the New Jersey Board, NASUCA, and 

APPA/NRECA, would compare a market 

value or ‘‘fair’’ market value with 

original cost undepreciated and select 

the higher of the two. They argue that 

the Commission must evaluate the 

widest possible range of transactions to 

determine the public interest 

implications of transactions; utilities 

will attempt to understate value and 

thereby avoid section 203 review. 

104. When a market-based 

determination of value is not possible or 

practical, commenters are divided, 

mainly between original cost 

undepreciated and net book value. 

Commenters who advocate the use of 

net book value urge the Commission to 

reject any use of original cost 

undepreciated, particularly for nonaffiliate transactions, since it does not 

reflect the deterioration (wear) of the 

facility.85 Rather, they would encourage 

the use of net book value, since it is the 

basis of transmission rates. 

105. Other commenters suggest a 

modification of the original cost 

undepreciated and net book value 

concepts. Missouri Public Utilities 

Commission (Missouri Commission) 

would rely on reproduction cost (the 

costs of replicating the same plant today 

with the same assets and same 

technology). As a proxy for this 

measure, Missouri Commission suggests 

that the original cost could be escalated 

by appropriate wholesale price indices. 

Scottish Power would adjust net book 

value by converting it to current dollars. 

b. Comments on Definition of ‘‘Value’’

as Applied to Transmitting Utilities, 

Electric Utility Companies, or Holding 

Companies 

106. Nearly all commenters support 

the market value approach as measured 

by the transaction price to determine the 

value of a transaction involving 

transmitting utilities, electric utility 

companies, or holding companies. 

NASUCA proposes the higher of market 

value or original cost undepreciated to 

limit the possibility that a merger of two 

independent transmission companies 

would escape review. It also asserts that 

market value is not necessarily the same 

as market price. FirstEnergy believes 

that the transaction price should reflect 

only the value of the underlying 

jurisdictional or generation facilities. 

The Commission should also establish 

other parameters for determining the 

market price, such as the point in time 

at which the determination is to be 

made, such as the date of the agreement, 

the date of filing of the application, or 

the date of consummation of the 

transaction. To the extent the 

Commission does not adopt transaction 

price, FirstEnergy urges the Commission 

to otherwise specifically define market 

value and specify safe harbor standards. 

c. Comments on Definition of ‘‘Value’’

as Applied to Paper Jurisdictional 

Facilities 

107. Many commenters, including 

state commissions and consumer groups 

generally favor total expected revenues 

over the contract’s remaining life as the 

appropriate measure of value for 

transfers of wholesale contracts.86 This 

is regardless of whether affiliates or 

non-affiliates are involved. Revenues 

will be a function of quantities of 

supply and thus are an indirect measure 

of the contract’s contribution to market 

supply, in much the same way that the 

value of generation assets will be related 

to generator size. These commenters 

also point out that a revenues approach 

would be much easier to apply than an 

expected net profits standard, which 

can be unpredictable on the basis of 

varying assumptions and is likely to be 

measured inaccurately. 

108. Constellation adds that the use of 

nominal revenues avoids confidentiality 

issues raised by how buyers and sellers 

value contracts on the basis of 

transaction price. This is particularly 

true where it is necessary to determine 

value for individual contracts that are 

part of a portfolio of contracts and nonVerDate Aug<31>2005 17:47 Jan 05, 2006 Jkt 208001 PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 E:\FR\FM\06JAR2.SGM 06JAR2

cchase on PROD1PC60 with RULES2
Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 1361 

87E.g., EEI, First Energy, Ameren, Duke/Cinergy, 

Entergy, International Transmission, EPSA, 

Independent Sellers, Scottish Power, Morgan 

Stanley, Indiana Commission, and Missouri 

Commission. 

88 In this context, ‘‘mark to market’’ refers to the 

process whereby the book value or collateral value 

of an asset such as a multiyear contract or power 

purchase agreement is adjusted to reflect current 

market value for the applicable period. 

89Accounting and Reporting of Financial 

Instruments, Comprehensive Income, Derivatives 

and Hedging Activities, Order No. 627, 67 FR 

67,691 (Oct. 10, 2002), FERC Stats. & Regs. ¶ 32,558 

(2002). 

90For example, EEI proposes that, for securities 

that are not widely traded, the Commission should 

allow companies to utilize the Edgar guidelines. If 

the Edgar guidelines are not applicable to a 

particular case, EEI suggests the following: For 

equity securities, a three part determination should 

be utilized to determine value: (i) Determining the 

value of the company that is the issuer of the equity 

securities based on the depreciated net book value 

of the company’s assets; (ii) 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 (iii) 

multiplying (i) by (ii) (i.e., the value of the company 

multiplied by the fraction of the equity securities 

at issue). EEI Comments at 11. 

jurisdictional assets. Some commenters 

point out that in some instances, for 

individual contracts, the seller may 

actually pay the buyer and the buyer 

may have the option to buy the power 

at a market price, which may be lower 

than contract price. Thus, the 

transaction price would either be 

negative or much smaller than under a 

revenues approach. This would increase 

the likelihood that the transaction 

would not fall under section 203. 

109. On the other hand, many 

commenters urge the Commission to 

adopt transaction price as the measure 

of value.87 They contend that value is 

closely tied to expected profits, which 

considers supply costs, unlike the 

revenue approach, and thus will be 

more accurately reflected in transaction 

price than in revenues. FirstEnergy 

comments that a revenues approach 

would be difficult to apply if the 

contract rates are not fixed. If the 

Commission decides not to use 

transaction price, commenters suggest a 

variety of other measures, including 

discounted value of future cash flows 

reduced by obligations, net present 

value of non-fuel revenues, and 

expected profits. 

110. For affiliate transactions, many of 

these same commenters generally agree 

that transaction price is appropriate if it 

is supported by Edgar-type evidence. 

However, another measure favored by 

EEI, Entergy, and Duke/Cinergy would 

apply ‘‘mark to market’’ pricing 88 to 

determine the value of a contract 

between affiliates. Entergy, citing Order 

No. 627,89 asserts that the Commission 

has taken the same approach in 

requiring utilities to report in Form 1 

changes to the fair market value of 

certain derivative instruments and 

activities. 

d. Comments on Definition of ‘‘Value’’

as Applied to Securities in Excess of $10 

Million 

111. Generally all of the commenters 

from the various segments of the 

industry, including regulatory 

commissions, public power, and 

customer groups, support the 

Commission’s proposal to value security 

transactions between non-affiliates at 

market value. Nearly all appear to 

accept our proposal to rebuttably 

presume that price is the appropriate 

measure of market value. FirstEnergy 

requests, however, that the Commission 

provide more specificity as to which 

price is relevant, i.e., the agreed-to-price 

or a publicly traded price, and as to 

what is meant by time of the 

transaction—the time of agreement or 

the time of consummation. FirstEnergy 

also asks whether the transaction value 

used should take into consideration the 

fact that non-regulated assets may be 

included in the transaction as well. EEI 

and International Transmission argue 

that to give regulatory certainty to the 

transacting parties, the relevant price 

should be the agreed-to price. 

112. EEI suggests that for securities 

transactions between affiliated parties, 

market price is reasonable when the 

securities are widely traded. However, 

several parties support assessing market 

value based on an application of Edgar 

standards, particularly when the 

securities are not widely traded. On the 

other hand, FirstEnergy and NASUCA 

contend that an Edgar approach will not 

work well because any group of nonaffiliate transactions will be vastly 

different in terms and other factors that 

affect value or price. When Edgar-type 

evidence is not available, EEI and 

Ameren propose certain formulaic 

measures involving company-specific 

variables; 90 NARUC suggests that the 

Commission simply use paid-in capital 

equity. Indiana Commission suggests 

that an affiliate transaction be 

constructed to evade section 203 

jurisdiction could be used to subsidize 

a non-jurisdictional affiliate, but 

Southern Companies asserts that 

transaction thresholds are so low there 

will no meaningful opportunities to 

evade jurisdiction by such means. 

e. Commission Determination 

113. The Commission notes the 

widespread support for using a market 

value approach (where feasible). After 

considering the comments of numerous 

parties, we remain convinced that 

market value is, in most instances, the 

most effective and reasonable approach 

(both for potential section 203 

applicants and for the Commission) to 

determine which asset transfers, 

particularly those that involve 

acquisitions of physical facilities or 

securities, require section 203 approval. 

114. As one commenter suggests, 

however, using market value as the 

measurement standard is not 

straightforward in all circumstances. For 

example, where the transaction involves 

a single asset subject to section 203 

being purchased and sold between nonaffiliates, the agreed-upon price for the 

transaction is a straightforward measure 

of market value. However, there may be 

non-affiliate transactions that include a 

bundle of assets, both assets subject to 

section 203 and assets not subject to 

section 203, so that the transaction price 

does not reflect the market value of only 

the assets subject to section 203. 

Another example involves transactions 

between affiliates where the agreedupon price for the exchange will not 

necessarily reflect market value. In both 

instances, other measures of market 

value would be required. 

115. It is important that the 

Commission provide as much guidance 

as possible to those contemplating 

business transactions regarding how the 

determination of value should be made 

and thus deciding whether section 203 

review is required. Such guidance will 

enhance parties’ certainty and will also 

contribute stability to investment 

decision-making by utilities and nonutilities alike. 

116. For transfers of physical facilities 

(transmission and generation facilities) 

the Commission will adopt market value 

as the appropriate measure of value. 

When a transaction occurs between nonaffiliates, the Commission will 

rebuttably presume that market value is 

the transaction price. The most obvious 

complicating factor in applying this test 

is the need to consider only the value 

of the facilities subject to section 203; 

many transactions will include other 

assets not subject to section 203 as well. 

However, in such situations, the 

acquiring entity will probably have 

made a valuation analysis of the 

constituent parts of the transaction in 

order to guide its negotiations and/or 

properly record the value of those 

facilities on its balance sheet. Almost 

certainly included in that analysis will 

be a valuation of the physical facilities. 

In transactions involving both facilities 

subject to section 203 and facilities not 

subject to section 203, companies 

should rely on such valuations in 


cchase on PROD1PC60 with RULES2
1362 Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 

91 18 CFR 1.36 (2005). 

deciding whether to file for section 203 

approval. 

117. If separate valuations of the 

physical assets were not performed, 

companies should rely on original cost 

undepreciated. Several commenters 

urge the Commission to reject the use of 

original cost undepreciated and adopt, 

instead, net book value. Our current 

regulations use original cost 

undepreciated as the appropriate 

measurement standard and we will 

continue to use that standard in 

applying amended section 203. 

Although net book value is a valuation 

method commonly used to establish 

cost-based rates, most generating 

facilities today sell power at market 

rates, and their market value is driven 

primarily by factors unrelated to the 

book depreciation of the facility. For 

example, many highly depreciated coalfired assets have commanded significant 

premiums in generation divestitures. 

Hence, we believe that the continued 

use of original cost undepreciated is 

preferable to net book value. 

118. We also cannot rely on 

transaction price as a measure of market 

value when a transaction involving 

physical facilities occurs between 

affiliates. Instead, here too we will 

adopt original cost undepreciated. The 

alternatives to transaction price most 

frequently supported by commenters 

include: (1) Value based on an Edgartype analysis (market value), (2) original 

cost undepreciated, (3) the higher of 

market value or original cost 

depreciated, and (4) net book value. As 

discussed above, as between the choices 

of original cost undepreciated and net 

book value, the Commission believes 

that original cost undepreciated is 

preferable and should continue to be 

used. 

119. The Edgar analysis is applied in 

section 205 proceedings to determine 

whether purchases from an affiliate are 

reasonable in light of other alternatives. 

The analysis is not intended to provide 

a bright-line easy-to-apply test of 

whether jurisdiction to approve a 

particular transaction exists in the first 

place. Rather, the analysis is often 

highly contentious and is used to 

determine the justness and 

reasonableness of a particular 

transaction, not for determining whether 

jurisdiction exists to review it in the 

first place. The Commission believes 

that, for purposes of section 203 

applicability, a valuation based on 

original cost depreciated will be simpler 

and less ambiguous than one based on 

Edgar, particularly when most 

transactions will clearly exceed $10 

million by any reasonable measure. 

120. With respect to determining 

value to be applied to transfers of 

wholesale contracts between nonaffiliates, the Commission will 

rebuttably presume that market value is 

the transaction price. This is consistent 

with our use of market value and 

transaction price for other types of asset 

transfers. As with transfers of physical 

facilities, when assets not subject to 

section 203 are included in the 

transaction, the acquiring entity should 

rely on its valuation of the contracts 

component included in transaction 

price. The market valuation should be 

consistent with the value the applicant 

places on the contract for purposes of its 

audited financial statements and in 

keeping with generally accepted 

accounting principle (GAAP) 

requirements. One commenter has 

expressed confidentiality concerns 

about valuations for individual 

contracts as part of a portfolio of 

contracts that could likely arise if a 

utility’s decision not to file for section 

203 approval was challenged. We 

believe that any such concerns can be 

addressed through our procedures that 

provide confidential treatment to certain 

proprietary materials.91 Furthermore, 

we note that any measurement standard 

(such as projected revenue stream) 

could also raise concerns over 

confidentiality in certain circumstances. 

121. The issue of how to value 

contract transfers between affiliates is 

more difficult to resolve, since a 

transaction price, if it exists at all, will 

not necessarily reflect market value. For 

affiliate transfers of contracts, we agree 

with one commenter that total expected 

contract revenues are a simple, objective 

way to assess value and to provide 

increased certainty as to the need for a 

section 203 filing. We therefore adopt 

this standard for valuing jurisdictional 

contracts between affiliates. 

122. Amended sections 203(a)(1)(C) 

and (a)(2) define the Commission’s 

jurisdiction over certain acquisitions of 

securities by public utilities and holding 

companies. With respect to securities 

transactions between non-affiliates, the 

Commission will adopt transaction 

price, as explained more fully herein, 

for the acquisition of securities by either 

a public utility or a holding company. 

The Commission recognizes that the 

NOPR was not entirely clear as to how 

to determine the ‘‘transaction price.’’

Although we stated that the value of a 

security would be defined as the market 

price at the time the security is 

acquired, we also stated that the market 

value would be rebuttably presumed to 

be the agreed-on transaction price. 

Thus, FirstEnergy asks how market 

price should be defined—a publicly 

traded price or the price ultimately 

agreed on. It also asked the Commission 

to clarify the meaning of ‘‘at the time the 

security is acquired.’’ Specifically, does 

this language refer to the point in time 

an agreement is entered into or the 

actual time of consummation of the 

transaction? 

123. The Commission is mindful of 

the need to provide parties as much 

regulatory certainty as possible with 

respect to decisions as to whether 

section 203 approval is required for a 

particular transaction. In this case, the 

Commission finds that greater 

regulatory certainty is provided by 

relying on the agreed-to transaction 

price at the time the transacting parties 

enter into an agreement. However, the 

Commission will reject the argument 

that the value of securities transactions 

should be adjusted to reflect the fact 

that not all of the assets underlying the 

value of the securities are jurisdictional 

facilities or generation facilities. 

Amended section 203 does not permit 

any such interpretation, as it applies to 

the purchase of the ‘‘security * * * of 

a * * * public utility,’’ not to the 

‘‘securities applicable to the 

jurisdictional facilities of a public 

utility.’’

124. For securities transactions 

between affiliates, however, an agreedon transaction price will not necessarily 

be consistent with market price. For that 

reason, if the securities are widely 

traded, the Commission will require that 

affiliates value the transaction based on 

the market price at the time the 

securities are acquired. If the securities 

are not widely traded, we will adopt, in 

a slightly modified manner, EEI’s 

suggestion. For equity securities, we 

will utilize a three-part determination to 

determine value: (i) 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; (ii) 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 (iii) multiplying 

(i) by (ii) (i.e., the value of the company 

multiplied by the fraction of the equity 

securities at issue). This method for 

securities transactions that are not 

widely traded is consistent with our use 

of original cost undepreciated to 

measure value for transactions between 

affiliates involving physical assets. 

125. Amended section 203(a)(2) 

addresses holding company mergers or 

consolidations with a transmitting 

utility, an electric utility company, or a 


cchase on PROD1PC60 with RULES2
Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 1363 

92Book cost, as used here, refers to original book 

cost. 

93Reporting 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). 

94NOPR at P 35. 

95E.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. 96NARUC Comments at 7–8. 

97See 16 U.S.C. 825o–1 (2000), as amended by 

EPAct 2005 1284(e). 

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. 

Regarding transactions between nonaffiliates, market value will be the 

transaction price or consideration paid, 

as provided for in the agreement 

between the transacting entities. As 

with securities, we note there is no 

statutory provision or legislative history 

to suggest that the transaction price 

should be adjusted to reflect the fact 

that non-jurisdictional assets are also 

involved, and so we will not allow for 

such an adjustment. 

126. For mergers or consolidations 

involving affiliates, transaction price 

will not be an acceptable basis for 

establishing value. Several commenters 

recommend the use of an Edgar-type 

analysis to arrive at a market value. 

However, the Edgar approach is not a 

practical approach to applying the $10 

million jurisdictional threshold 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

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

a. Comments 

128. Many commenters believe that 

the Commission’s existing recordkeeping 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. 

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

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

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 


cchase on PROD1PC60 with RULES2
1364 Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 

98While 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). 

100The 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 * * *.’’

101We 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. 

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 crosssubsidization 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 preapproval process and reporting 

requirements adopted for cash 

management agreements) or blanket 

authorization. 

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 crosssubsidization 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 nontraditional, 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. 

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. 


cchase on PROD1PC60 with RULES2
Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 1365 

102See, e.g., EEI Comments at 27–31. 

103See Cash Management Rule at P 29. 

104We 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. 

105See Cash Management Rule at P 29 (discussing 

exception for non-voting interests that convey 

significant veto rights). 106See, 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.’’). 

107Accordingly, 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. 

108NOPR at P 45. 

i. Cash Management Programs and IntraHolding 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 managementtype programs, subject to the discussion 

below. 

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. 

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 nonvoting 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. 

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. 

8. Section 33.2(j)—General Information 

Requirements Regarding CrossSubsidization 

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. 

147. The Commission noted that it 

has sought to guard against potential 


cchase on PROD1PC60 with RULES2
1366 Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 

109 16 U.S.C. 824d (2000). 

110See, e.g., Sierra Pacific, 95 FERC ¶ 61,193; 

Boston Edison Co., 80 FERC ¶ 61,274 (1997). 

111NOPR at P 46. 

112E.g., NARUC, New Jersey Board, Ohio 

Commission, Oklahoma Commission, Indiana 

Commission, APPA/NRECA, TANC, TAPSG, 

NASUCA, and UWUA. 

113New Jersey Board Comments at 6 (emphasis in 

original). 

114E.g., Duke/Cinergy, Entergy, EEI, AEP, 

Ameren, FirstEnergy, Progress Energy, International 

Transmission, National Grid, and Scottish Power. 

115See, e.g., EEI Comments at 20–21; Entergy 

Comments at 8; Duke/Cinergy Comments at 7. 

cross-subsidization and affiliate abuse 

when it reviews applications for costbased 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 nonpower 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. 

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 nonrecourse 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 crosssubsidization and affiliate abuse. 

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

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 crosssubsidy 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. 

154. Duke/Cinergy, EEI, PNM, and 

Entergy assert that the Commission 

should allow applicants to avoid a 

detailed examination of crosssubsidization 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 nonutility 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 crosssubsidization issue or, if there is, that 

the transaction is consistent with the 

public interest. 


cchase on PROD1PC60 with RULES2
Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 1367 

116E.g., Duke/Cinergy, EEI, Entergy, AEP, 

Ameren, Progress Energy, PNM, FirstEnergy, 

International Transmission, National Grid, and 

Scottish Power (citing NOPR at P 52.). 117AEP Comments at 6–7. 

118Customers charged under market-based rates 

escape the potentially deleterious effects of crosssubsidization, 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 

Continued 

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

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 transmissionspecific 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 crosssubsidization, 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 crosssubsidization 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 nonpower goods or services, or vice versa. 

162. AEP encourages the Commission 

to retain the ‘‘at cost’’ standard for intrasystem 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

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 intracompany 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 crosssubsidization 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 crosssubsidization 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 crosssubsidization, 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 caseby-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 costbased rates that could be adversely 

affected by a section 203 transaction.118


cchase on PROD1PC60 with RULES2
1368 Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 

(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). 

119NOPR at P 48 and 49. 

120See 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). 

121These 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. 

122PUHCA 2005 Final Rule at P 166–73. 

123As 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. 

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 crosssubsidization. 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. 

167. In sum, the concern about crosssubsidization 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 crosssubsidization. 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. 

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 crosssubsidization, 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 nonpower goods and services, we note that 

the Commission addressed this issue in 

the PUHCA 2005 rulemaking.122

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 


cchase on PROD1PC60 with RULES2
Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 1369 

124NOPR at P 56. 

125 Id. at P 57. 

126NOPR 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. 

127NOPR 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. 

128See 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. 

129E.g., EEI, Duke/Cinergy, Entergy, AEP, 

Progress Energy, Ameren, AES, EPSA, Scottish 

Power, and E.ON. 

130E.g., EEI Comments at 22–23, 25–26; National 

Grid Comments at 20–22; AES Comments at 15–19; 

EPSA Comments at 8–9. 

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

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

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

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 crosssubsidization or pledge or encumbrance 

issues.127

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

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 preapprove 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. 

181. State commission commenters, 

including NARUC, Ohio Commission, 

and New Jersey Board, generally suggest 

that, in order to protect domestic 

customers while expediting or preapproving 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 


cchase on PROD1PC60 with RULES2
1370 Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 

131See, e.g., NARUC Comments at 15–16; Ohio 

Commission Comments at 8–9; New Jersey Board 

Comments at 9–10. 

132See, e.g., EEI Comments at 24–26; Duke/ 

Cinergy Comments at 10–11; Entergy Comments at 

9–11. 

133National Grid Comments at 33. 

134See, e.g., EEI Comments at 26–27. 

135We note that although the Filing Requirements 

Rule provided that applicants for a transaction 

involving only transmission facilities need not 

provide a competitive analysis under §§ 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. 

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. 

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 nondominant 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. 

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. 

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

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

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, 


cchase on PROD1PC60 with RULES2
Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 1371 

136Regional 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). 

137Filing Requirements Rule at 31,902. 

138EPAct 2005 § 1263. 

139See 17 CFR part 250 (2005). 

140NOPR 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. 

we believe that ISOs and RTOs are procompetitive 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. 

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 shortcircuited,’’ 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 trialtype 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 intercompany 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

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 nonutility 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 


cchase on PROD1PC60 with RULES2
1372 Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 

141 17 CFR 250.53 (2005). 

142TAPSG explains that the Hart-Scott-Rodino 

notification is a far more limited submission 

required of all utilities subject to the Hart-ScottRodino filing requirements and described in 16 CFR 

part 803 (2005). 

143 5 CFR 1320.11 (2005). 

144 44 U.S.C. 3507(d) (2000). 

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

146NOPR at P 70. 

147 GE EFS Comments at 2. 

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. 

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. 

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. 

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

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. 

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 


cchase on PROD1PC60 with RULES2
Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 1373 

148Order 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). 

150 5 U.S.C. 601–12. 

151The 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). 

152See 5 U.S.C. 804(2). 

153See 5 U.S.C. 801(a)(1)(A). 

20426, Attention: Michael Miller, 

Officer of the Executive Director, phone: 

(202) 502–8415, fax: (202) 273–0873, email: michael.miller@ferc.gov. 

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: 

(202) 395–4650, 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

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. 

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 202–502–

6652 (e-mail at 

FERCOnlineSupport@FERC.gov), or the 

Public Reference Room at 202–502–

8371, TTY 202–502–8659 (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

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. 

■ In consideration of the foregoing, the 

Commission amends Chapter I, Title 18, 

Code of Federal Regulations, as follows: 

PART 2—GENERAL POLICY AND 

INTERPRETATIONS 

■ 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. 

■ 2. Section 2.26 is amended by revising 

paragraph (e) and by adding paragraph 

(f) to read as follows: 

§ 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 


cchase on PROD1PC60 with RULES2
1374 Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 

reviewing a proposed transaction 

subject to section 203, the Commission 

will also consider whether the proposed 

transaction will result in crosssubsidization of a non-utility associate 

company or pledge or encumbrance of 

utility assets for the benefit of an 

associate company, unless that crosssubsidization, pledge, or encumbrance 

will be consistent with the public 

interest. 

PART 33—APPLICATIONS UNDER 

FEDERAL POWER ACT SECTION 203 

■ 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. 

■ 4. The heading of part 33 is revised to 

read as set forth above. 

■ 5. Section 33.1 is revised to read as 

follows: 

§ 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 


cchase on PROD1PC60 with RULES2
Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 1375 

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). 

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. 

■ 6. Section 33.2 is amended to add 

paragraph (j) to read as follows: 

§ 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. 

■ 7. Section 33.11 is added to read as 

follows: 

§ 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

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. 


cchase on PROD1PC60 with RULES2
1376 Federal Register / Vol. 71, No. 4 / Friday, January 6, 2006 / Rules and Regulations 

COMMENTERS—Continued 

Acronym Name 

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 


cchase on PROD1PC60 with RULES2