David R. Sahr, Esq. 

Mayer Brown LLP 

1675 Broadway 

BOARD OF GOVERNORS 

OF' THE 

FEDERAL RESERVE SYSTEM 

WASHINGTON, 0. C. 20551 

New York, New York 10019-5820 

Dear Mr. Sahr: 

ADDRESS OFFICIAL CORRESPONDENCE 

TO THE BOARD 

May 21, 2008 

This letter concerns the notice filed March 13, 2008, under section 4 of 

the Bank Holding Company Act ("BHC Act") by Fortis S.A./N.V., Fortis N.V., Fortis 

Brussels S.A./N.V., and Fortis Bank S.A./N.V. (collectively, "Fortis"), all of Brussels, 

Belgium, to enter into physically settled tolling agreements with power plant owners in 

the United States ("Energy Tolling"). 

In the United States, Fortis currently engages in commodity derivatives 

activities that are permissible for bank holding companies under the BHC Act 

("Commodity Derivatives Activities")1 and physical commodity trading activities 

("Physical Commodity Trading") and provides energy management services for 

owners of power generation facilities under energy management agreements 

("Energy Management Services"). The Board previously authorized Fortis to engage 

in Physical Commodity Trading and to provide Energy Management Services as 

activities that are complementary to Commodity Derivatives Activities and, in the case 

of Energy Management Services, also complementary to providing financial and 

investment advisory services for derivatives transactions.2 Fortis conducts Commodity 

Derivatives Activities and Physical Commodity Trading and provides Energy 

Management Services primarily through a nonbank subsidiary, Fortis Energy 

Marketing & Trading GP ("FEMT"). 

Fortis has requested approval to expand FEMT' s current activities to 

include Energy Tolling. Under the energy tolling agreements to which Fortis would be 

a party, Fortis would make periodic fixed payments to the owner of a power 

generation facility ("capacity payments") in exchange for the right to all or part of the 

1 See 12 U.S.C. § 1843(k)(4)(F). 

2 Board Letter regarding Fortis S.A./N.V. (September 29, 2006); Fortis S.A./N.V., 

94 Fed. Res. Bull. C20 (2008). 
2 

plant's power output. Fortis would also generally supply fuel and make payments to 

cover the owner's variable costs plus a profit margin. The plant owner, however, 

would retain control over the day-to-day operations of the plant and physical plant 

assets at all times. 3 

The Board has previously determined pursuant to Regulation Y that 

Energy Tolling complements the financial activity of engaging in Commodity 

Derivatives Activities. 4 The Board has delegated to the Director of the Division of 

Banking Supervision and Regulation, with the concurrence of the General Counsel, the 

authority to approve requests by financial holding companies to engage in Energy 

Tolling as an activity that is complementary to Commodity Derivatives Activities, if 

the proposal meets the conditions imposed by the Board when approving previous 

requests to engage in Energy Tolling and does not raise significant legal, policy, or . . supervisory Issues. 

Fortis has committed to conduct Energy Tolling activities in accordance 

with the restrictions, definitions, and conditions previously imposed by the Board on 

the conduct of those activities. In connection with the Board's approval ofFortis's 

Physical Commodity Trading activities, Fortis committed to the Board that it will limit 

the aggregate market value of physical commodities that it and any of its subsidiaries 

hold at any one time to 5 percent ofF ortis' s tier 1 capital. Fortis also has committed to 

include the present value of capacity payments associated with Energy Toiling 

contracts in that 5 percent limit. As a result, Fortis's potential exposure to commodity 

price risk would not increase by engaging in Energy Tolling activities. Fortis also has 

established and maintained policies and systems for monitoring and controlling the 

risks associated with Physical Commodity Trading and Energy Tolling. Going 

forward, Fortis is expected to continue to maintain effective risk-management policies 

and systems for both of those activities. Approval of the current proposal would likely 

benefit Fortis's customers by enhancing Fortis's ability to provide efficiently a full 

range of commodity-related services and improving its understanding of the 

commodity markets. 

Based on the record, including all the commitments made to the Board in 

connection with the notice and the conditions imposed by the Board in previous cases, 

the Director, with the concurrence of the General Counsel, has determined that the 

proposed Energy Tolling is complementary to the Commodities Derivatives Activities 

3 

4 The Royal Bank of Scotland Group PLC, 94 Federal Reserve Bulletin_ (2008). 

[The footnote has been redacted.]
3 

conducted by Fortis; that the proposal would not appear to pose a substantial risk to 

Fortis, depository institutions operated by Fortis, or the financial system generally; and 

that the proposal can reasonably be expected to produce benefits to the public that 

outweigh any potential adverse effects. 

In making these determinations, the Director and the General Counsel 

relied on all the information, representations, and commitments provided by Fortis to 

the Board in connection with the notice and the conditions contained in the previous 

decisions noted above. These commitments and conditions are critical to the 

determination that Energy Tolling would not pose a substantial risk to the safety and 

soundness of Fortis, other financial institutions, or the financial system generally. 

These determinations are also subject to all the conditions set forth in Regulation Y, 

including those in section 225.7,5 and to the conditions contained in the Board's 

previous decisions noted above. These commitments and conditions are deemed to be 

conditions imposed in writing by the Board in connection with the notice and this 

approval and, as such, may be enforced in proceedings under applicable law. In 

addition, these determinations are subject to the Board's authority to require 

modification or termination of the activities of a bank holding company or any of its 

subsidiaries as the Board finds necessary to ensure compliance with, or to prevent 

evasion of, the provisions and purposes of the BHC Act and the Board's regulations 

and orders issued thereunder. 

Sincerely yours, 

Robert deV. Frierson 

Deputy Secretary of the Board 

cc: Federal Reserve Bank of New York 

5 12 CFR 225.7.