Document ID: FERC-2008-1691-0001
Agency: ferc
Document Type: Notice
Title: Order Clarifying Jurisdiction Over Certain Investment Adviser Activities: Horizon Asset Management, Inc.
Posted Date: 2008-11-25T05:00Z

[Federal Register: November 25, 2008 (Volume 73, Number 228)]
[Notices]               
[Page 71631-71639]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25no08-59]                         

[[Page 71631]]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[ Docket Nos. EC08-91-000, EC08-91-001]

 
Horizon Asset Management, Inc.; Order Clarifying Jurisdiction 
Over Certain Investment Adviser Activities Under Section 203(A)(2) of 
the Federal Power Act, Allowing Affected Investment Entities a 90-Day 
Filing Period, and Acting On Requests for Blanket Authorizations

Issued November 20, 2008.

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

    1. On May 19, 2008, as amended on September 25, 2008,\1\ Horizon 
Asset Management (Horizon) filed a request for a disclaimer of 
jurisdiction by the Commission that would relieve Horizon of the 
obligation to obtain prior Commission authorization under section 203 
of the Federal Power Act (FPA) \2\ for acquisitions of the securities 
of certain public utility holding companies or certain electric utility 
operating companies. In the alternative, Horizon requests blanket 
authorizations, under sections 203(a)(1) and 203(a)(2) of the FPA: (1) 
For Horizon to instruct or advise on the acquisition on behalf of 
Account Holders, as defined below, of securities of public utilities or 
public utility holding companies, and (2) for public utilities or 
public utility holding companies to sell securities to Horizon on 
behalf of the Account Holders. Horizon also requests retroactive 
authorization for the holdings in excess of 10 percent of the voting 
shares of Reliant Energy, Inc. (Reliant), Sierra Pacific Power (Sierra 
Pacific), and Aquila, Inc. (Aquila).
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    \1\ The May 19, 2008, filing is the original application 
(Original Application). The September 25, 2008, filing is an 
amendment to the Application (Amendment) and also provides answers 
to a deficiency letter from Commission staff (Answer).
    \2\ 16 U.S.C. 824b (2006).
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    2. In this order the Commission clarifies an aspect of its 
jurisdiction under the ``purchase, acquire, or take any security'' 
clause of FPA section 203(a)(2). We also deny the request for a 
disclaimer of jurisdiction, dismiss the request for blanket 
authorization under section 203(a)(1) as unnecessary, and find that the 
request for blanket authorization under section 203(a)(2) is consistent 
with the public interest. We grant the blanket authorization under 
section 203(a)(2), subject to reporting and record retention 
conditions, for a period of three years. We deny the request for 
retroactive approval of Horizon's holdings in excess of 10 percent of 
the voting shares of Reliant, Sierra Pacific, and Aquila but, in light 
of the previous lack of clarity regarding our interpretation of the 
scope of section 203(a)(2), we determine not to impose sanctions for 
Horizon's failure to file for prior approval of these acquisitions of 
securities.
    3. Having now clarified our interpretation of the Commission's 
jurisdiction under the ``purchase, acquire, or take any security'' 
clause of section 203(a)(2), however, we caution Horizon and other 
similar investment advisers that they may face possible monetary or 
other sanctions if they fail to obtain advance approval under section 
203(a)(2) of similar acquisitions of securities. Further, we remind 
investment companies and advisers that if they participate or have a 
role in other types of acquisitions of securities of public utility 
companies or public utility holding companies and it is not clear to 
them whether section 203(a)(2) approval is needed for those types of 
transactions, they have the option of seeking a jurisdictional 
determination from the Commission through a declaratory order or other 
appropriate procedural mechanism prior to engaging in the transactions.
    4. Because not all investment companies and advisers may have been 
aware of our interpretation of the Commission's jurisdiction under the 
``purchase, acquire, or take any security'' clause of section 203(a)(2) 
to require prior authorization for the acquisition of public utility 
securities as discussed in this order, we will allow any such affected 
entity to file within 90 days of the date of publication of this order 
in the Federal Register an application requesting such authorization.

I. Background

A. Description of Applicant

    5. Horizon is an investment adviser registered with the Securities 
and Exchange Commission (SEC).\3\ Horizon states that its primary 
business is the management and direction of separately managed 
accounts. These accounts are owned by individuals and entities (Account 
Holders) and are generally ``in the hands of'' account custodians 
(typically, one of the large banking institutions). The vast majority 
of the separately managed accounts are ``discretionary accounts,'' 
which means that Horizon has the exclusive authority to manage the 
account and instruct the custodian to add or reduce positions in the 
account. Horizon states that the Account Holder is the actual owner of 
all the stock in the account and is listed in the relevant stock 
registries as the owner. Horizon earns a fee for its management of the 
account.
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    \3\ Under the Investment Advisers Act of 1940, an investment 
adviser is any person who, for compensation, engages in the business 
of advising others, either directly or through publications or 
writings, as to the value of securities or as to the advisability of 
investing in, purchasing, or selling securities, or who, for 
compensation and as part of a regular business, issues or 
promulgates analyses or reports concerning securities. 15 U.S.C. 
80b-2(a)(11) (2006).
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    6. Horizon states that it is the general partner and investment 
adviser of certain hedge funds and it is a subadviser to certain mutual 
funds. In one instance, Horizon has been delegated the right to vote 
shares in the fund. Of the total amount Horizon has under management, 
roughly 90 percent is in separately managed accounts. Horizon states 
that it employs a variety of strategies in its activities as an 
investment adviser, which permits an investor to select the strategy of 
choice for the direction of his or her separately managed account or to 
select a hedge fund that embodies the strategy.
    7. Horizon states that its Account Holders previously held the 
authority to vote the shares in their accounts (absent a provision in 
the management agreement between Horizon and the Account Holder to the 
contrary). But several years ago, at the request of Account Holders, 
Horizon began inserting a provision in the management agreement under 
which the Account Holder delegated the right to vote the shares in his 
or her account to Horizon.
    8. Horizon states it has filed as an exempt holding company under 
the Public Utility Holding Company Act of 2005 (PUHCA 2005) \4\ and 
Commission form FERC-65A with respect to its accounts holding more than 
10 percent of the voting securities of Reliant, Sierra Pacific, and 
Aquila.
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    \4\ 42 U.S.C. 16451 et seq. (2006).
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    9. Each Account Holder is a separate legal person or entity. 
Horizon states that it does not control any of the Account Holders. 
Each Account Holder has delegated to Horizon the responsibility for 
supervising and managing the securities portfolio of that account. The 
delegated responsibilities include both the purchase and sale of the 
securities as well as the voting rights proxies. Horizon states that in 
exercising the voting rights it generally defers to Institutional 
Shareholder Services, Inc. (Institutional Shareholder

[[Page 71632]]

Services) \5\ but retains the option to override its decisions. Horizon 
maintains that Account Holders are passive investors with respect to 
ownership interests in utilities and will be unable to exercise 
control.
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    \5\ Institutional Shareholder Services is an entity who performs 
proxy voting functions for a number of registered investment 
advisers and other entities.
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B. Request for Disclaimer of Jurisdiction or Blanket Authorization

    10. Horizon's application contains two basic requests that are 
posed in the alternative. First, Horizon requests that the Commission 
disclaim jurisdiction over its account management activities that 
involve the acquisition of holding company or utility securities that 
otherwise would be subject to Commission approval under FPA section 
203. Alternatively, Horizon seeks permanent blanket authorization under 
FPA sections 203(a)(1) and 203(a)(2) for: (i) Horizon to engage in 
account management activities involving the acquisition of the voting 
securities of any public utility, electric utility company, 
transmitting utility, or holding company in a holding company system 
that includes an electric utility company or transmitting utility; and 
(ii) utilities or holders of utility voting securities to sell their 
securities to Horizon or its agents in transactions that fall within 
the scope of its account management activities, subject to certain 
conditions. Horizon proposes the following conditions to its requested 
blanket authorization that are intended to prevent the exercise of 
control over jurisdictional facilities:
    (1) Horizon will only manage the securities of publicly-traded 
utilities on behalf of Account Holders and all acquisitions of 
securities made pursuant to the authorizations shall be securities of 
publicly-traded utilities; \6\
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    \6\ Horizon defines ``publicly traded utilities'' as utilities 
whose common stock is traded on the New York Stock Exchange, the 
American Stock Exchange, or the NASDAQ.
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    (2) The shares of any public utility or public utility holding 
company in an individual Horizon account shall be less than 10 percent 
of the issued voting securities of such public utility or public 
utility holding company;
    (3) Horizon shall maintain its policies and comply with applicable 
statutory prohibitions against exercising control over companies whose 
securities are acquired for Horizon Account Holders, and Horizon will 
not change such policies in the future;
    (4) Horizon will maintain its eligibility to make Schedule 13G 
filings with the SEC pursuant to SEC rules under the Securities and 
Exchange Act of 1934 \7\ and, when appropriate, will make such 13G 
filings with respect to securities of public utilities and public 
utility holding companies and contemporaneously file a copy with the 
Commission.\8\ Further, Horizon shall file with the Commission any 
comment or deficiency letters received from the SEC that concern 
Schedule 13G-related compliance audits conducted by the SEC. Those 
filings shall be made in this docket or in appropriate sub-dockets of 
this docket;
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    \7\ 15 U.S.C. 78a et seq. (2000) (1934 Act).
    \8\ Under the Securities Exchange Act of 1934, 15 U.S.C. 78a et 
seq. (2000 & Supp V 2005), and the SEC's regulations under that 
statute, 17 CFR 240.13-1 et seq., when any person acquires, directly 
or indirectly, beneficial ownership of five percent or more of any 
class of securities of a publicly-traded company, that person must 
file a disclosure report with the SEC on either a Schedule 13D or 
13G. While there are other distinguishing characteristics, the 
fundamental difference is usually the ``investment intent'' of the 
investor, which can change at any time and then be acted upon after 
10 days. A Schedule 13D must be filed when the owner of the 
securities holds the securities ``with the purpose or effect of 
changing or influencing the control of the issuer'' or if ownership 
``equals or exceeds 20 percent of the class of equity securities.'' 
17 CFR 240.13-1(c). In order to qualify to file a Schedule 13G, the 
filer must be able to certify that it ``has acquired such securities 
in the ordinary course of business and not with the purpose nor with 
the effect of changing or influencing the control of the issuer, nor 
in connection with or as a participant in any transaction having 
such purpose or effect.'' 17 CFR 240.13-1(b)(1)(i). The commitment 
not to influence control is not permanent. Under SEC rules, once a 
Schedule 13G has been filed, a person can change its intent and 
begin to exert control or commence acquiring additional securities 
with the intention of exerting control 10 days after filing Schedule 
13D. 17 CFR 240.13-1(c).
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    (5) Horizon will not take action which would require it to make a 
Schedule 13D filing with the SEC with respect to the securities of any 
public utility or public utility holding company;
    (6) Horizon will include language in its Form ADV,\9\ its Policies 
and Procedures Manual, its annual letter to Account Holders, and all 
future Account Holder Agreements explicitly providing that Horizon 
shall not exercise the shareholder voting rights delegated to Horizon 
by Account Holders, or act in any other way, to exercise control over 
any public utility or any public utility holding company. Horizon shall 
not change or withdraw this language without providing the Commission 
with at least 90 days notice;
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    \9\ A Form ADV is a SEC form used to register an investment 
adviser under the Investment Advisers Act.
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    (7) The shares of any public utility or public utility holding 
company over which Horizon and any affiliated entity have voting power 
shall not exceed 19.99 percent of the voting securities of such public 
utility or public utility holding company;
    (8) Horizon shall retain the records of its transactions concerning 
public utility securities as required under the Investment Advisers Act 
of 1940 (Investment Advisers Act).\10\
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    \10\ 15 U.S.C. 80b-2(a)(11).
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    (9) Horizon shall generally defer to Institutional Shareholder 
Services voting recommendations and will exercise its voting power in a 
way that is consistent with its fiduciary duties to its Account Holders 
but, in any case, shall maintain readily auditable records of the 
voting of the shares of public utilities or public utility holding 
companies in its accounts; and
    (10) Horizon shall provide the Commission with a quarterly report 
within 45 days of the end of each calendar quarter of the holdings of 
securities of public utilities and public utility holding companies as 
of the last day of the calendar quarter stated in terms of the number 
of shares held as of the end of the quarter and as a percentage of the 
outstanding shares.

II. Notice of Filings and Responsive Pleadings

    11. Notice of the Original Application was published in the Federal 
Register, 73 FR 31,085 (2008), with interventions and protests due on 
or before June 9, 2008. None was filed. Notice of the Amendment and 
Answer was published in the Federal Register, 73 FR 58,222 (2008), with 
interventions and protests due on or before October 16, 2008. None was 
filed.

III. Discussion

A. Disclaimer of Jurisdiction

1. Horizon's Request
    12. Horizon states that it is an investment adviser that directs 
acquisitions of stock for its account holders and maintains that this 
activity does not bring it within the Commission's jurisdiction under 
FPA section 203. Horizon notes that section 203(a)(2) applies to 
holding companies that ``purchase, acquire, or take'' utility or 
holding company securities, and it argues that it does not engage in 
these activities. Horizon points out that the FPA does not define the 
terms ``purchase,'' ``acquire,'' or ``take,'' and its analysis focuses 
on the meaning that should be attributed to them.\11\ It

[[Page 71633]]

maintains that in interpreting these terms, the Commission should begin 
by assuming that their ordinary meaning expresses their legislative 
purpose, and they should be viewed in the light of the ``object and 
policy'' of the statute.\12\ Horizon finds their ordinary meaning in 
various dictionary definitions, and it maintains that those definitions 
show that it has not purchased, taken or acquired any securities in the 
course of its business activities.
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    \11\ The text of section 203(a)(2) reads as follows:
    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, 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 $10,000,000 without first having secured 
an order of the Commission authorizing it to do so.
    16 U.S.C. 824b(a)(2) (2006).
    \12\ Application at 6.
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    13. According to Horizon, to ``purchase'' means ``to obtain by 
buying,'' \13\ to ``obtain for money or by paying a price,'' \14\ or to 
``acqui[re] by one's own or another's act * * * rather than by descent 
or inheritance.'' \15\ Horizon argues that these definitions do not 
apply to it because it does not obtain or buy the securities in the 
accounts it manages. Instead, it directs stock trading companies to buy 
or obtain securities for its Account Holders.
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    \13\ Application at 6 (citing Webster's New World Dictionary, 
Third College Ed.) at 1091 (1994)).
    \14\ Id.
    \15\ Id. (citing Black's Law Dictionary at 1270 (8th deluxe ed. 
2004)).
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    14. Horizon states that to ``acquire'' is normally defined as 
``[t]o gain possession or control of; to get or obtain,'' \16\ or to 
``get or gain by one's own efforts[;] to come to have as one's own; get 
possession of.'' \17\ Horizon argues that it is its Account Holders who 
acquire the securities in the course of its business operations.
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    \16\ Id. (citing Black's Law Dictionary at 25).
    \17\ Id. (citing Webster's New World Dictionary at 12).
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    15. Finally, Horizon argues that it does not ``take'' public 
utility securities by virtue of its role as investment adviser because 
that would require a finding that it ``obtain[s] possession or 
control'' of, or ``transfer[s] to [it]self,'' the public utility 
securities.\18\
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    \18\ Id. (citing Black's Law Dictionary at 1492; Webster's New 
World Dictionary at 1364).
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    16. Horizon follows this discussion of dictionary definitions with 
several observations on differences between the language in section 
203(a)(1) and section 203(a)(2), as well as the treatment of direct and 
indirect acquisitions of securities under section 203(a)(2). Horizon 
notes that the Commission has acknowledged that section 203(a)(1)(A) 
contains broad, catch-all language regarding the scope of transactions 
that it covers, and section 203(a)(2) has no similar language. 
Specifically, section 203(a)(1)(A) requires Commission authorization 
for a public utility to sell, lease, or otherwise dispose of certain 
facilities, and section 203(a)(2) requires Commission authority to 
purchase, acquire, or take certain securities. In other words, section 
203(a)(2) does not contain additional language such as ``or otherwise 
obtain.'' \19\ Horizon concludes that the absence of such language 
counsels against a finding that section 203(a)(2) is intended to confer 
jurisdiction over the type of activity it engages in.
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    \19\ Id. at 7 (citing Phelps Dodge Corporation, 121 FERC ] 
61,251, at P 19 (2007)).
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    17. Horizon also notes that the Commission has concluded that the 
first clause of section 203(a)(2), which pertains to securities 
acquisitions, addresses direct and not indirect acquisitions. Horizon 
maintains that in its case any direct acquisitions are made by its 
Account Holders, and it is not a parent holding company of its Account 
Holders or any of the stock trading companies that purchase the 
securities held in the accounts.
    18. Horizon states that it does not own, legally or beneficially, 
the public utility securities in the accounts it manages, and it is not 
a beneficial owner of public utility securities under section 13(d) of 
the 1934 Act or the SEC's regulations under that statute because those 
securities are not acquired with ``the purpose or effect of changing or 
influencing control of the issuer.'' \20\ This is because the public 
utility securities acquired by the Account Holders at Horizon's 
direction are not acquired with the purpose or effect of changing or 
influencing control of the issuer.\21\ Horizon states that as an 
investment adviser, Horizon does not directly or indirectly own or 
acquire securities of public utilities in the accounts it manages; it 
does not itself purchase those securities on behalf of the account 
holders; and it does not have the authority to manage, direct, or 
control the day-to-day operations of any public utilities. While 
Horizon states in its May 19, 2008 application that it does not 
exercise the voting rights delegated to it and instead delegates those 
rights to Institutional Shareholder Services,\22\ Horizon suggests in 
its September 25, 2008 amendment to its application that Institutional 
Shareholder Services simply provides voting recommendations.\23\
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    \20\ Id. at 7-8 (citing Goldman Sachs Group, 121 FERC ] 61,059, 
at n.33 (2007) (Goldman Sachs) (citing 17 CFR 240.16a-1(a)(1)).
    \21\ We note that Horizon has represented that it is a 
beneficial owner with respect to Schedule 13G filings made for 
holdings of Aquila, Reliant, Allegheny Energy Inc., and Sierra 
Pacific. See Horizon Asset Management, Inc., Form Schedule 13G, 
Statement of acquisition of beneficial ownership by individuals, 
(filed Feb. 20, 2008) http://www.sec.gov/Archives/edgar/data/66960/
000105682308000003/horizonthirteengaquila22008.txt; Horizon Asset 
Management, Inc., Form Schedule 13G, Statement of acquisition of 
beneficial ownership by individuals, (filed Feb. 20, 2008) http://
www.sec.gov/Archives/edgar/data/1056823/000105682308000007/
horizonthirteengrrieight.txt; Horizon Asset Management, Inc., Form 
Schedule 13G, Statement of acquisition of beneficial ownership by 
individuals, (filed Mar. 6, 2008) http://www.sec.gov/Archives/edgar/
data/3673/000105682308000012/horizonthirteengaye32008.txt; Horizon 
Asset Management, Inc., Form Schedule 13G/A, Statement of 
acquisition of beneficial ownership by individuals [amend], (filed 
Mar. 10, 2008) http://www.sec.gov/Archives/edgar/data/741508/
000105682308000013/horizonthirteengspaeight.txt.
    \22\ Application at 8.
    \23\ September 25, 2008 Amendment at 4.
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    19. Horizon distinguishes itself from other investment companies 
that have received blanket authorizations under section 203(a)(2) based 
on three considerations.\24\ First, those companies conceded that they 
or their affiliates were purchasers or acquirers of securities because 
they made the purchases or acquisitions themselves. Horizon states that 
it does not purchase securities as a broker.
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    \24\ Horizon seeks to distinguish itself from the companies 
dealt with in Capital Research & Mgnt. Co., 116 FERC ] 61,267 (2006) 
(CRMC); Goldman Sachs, supra n.20; Morgan Stanley, 121 FERC ] 61,060 
(2007) (Morgan Stanley); Legg Mason, Inc., 121 FERC ] 61,061, at P 
18 (2007) (Legg Mason); T. Rowe Price Group Inc., 119 FERC ] 62,048 
(2007).
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    20. Horizon argues that the other applicants either did not raise 
the issue of jurisdiction or simply conceded it or requested that the 
Commission assume jurisdiction. Horizon, on the other hand, does not 
request that the Commission assume jurisdiction and argues that it does 
not purchase or acquire utility or holding company securities. Finally, 
Horizon maintains that certain of these other applicants sought blanket 
authorization not only for an investment adviser but also for 
affiliated mutual funds that an investment adviser manages. These 
mutual funds clearly own or acquire the stock in question. By contrast, 
Horizon states that it is not seeking authorization for any of its 
Account Holders.
    21. Horizon next argues that even if it were deemed to purchase, 
acquire, or take public utility securities, it should be excluded from 
the FPA's definition of a holding company. Horizon states that the FPA 
incorporates the definition of a holding company found in the Energy 
Policy Act of 2005 (EPAct 2005).\25\ It notes that a holding company is 
defined there as a company that

[[Page 71634]]

directly or indirectly owns, controls, or holds with power to vote 10 
percent or more of the outstanding voting securities of a public 
utility company or a holding company of a public utility company. 
Horizon argues that it does not directly or indirectly own, control, or 
hold any outstanding voting securities of public utility companies or 
holding companies in the accounts it manages, and it therefore does not 
fall within the definition. To the extent that Horizon is delegated any 
voting power, it re-delegates that power to Institutional Shareholder 
Services. Horizon notes that the Commission can find a company that 
does not meet the definition of a holding company to be a holding 
company if the company exerts a ``controlling influence'' over the 
management of any public utility company or holding company. Horizon 
maintains that it exercises no such influence, and it has no plans to 
do so.
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    \25\ 42 U.S.C. 16451(8) (2006).
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    22. Horizon states that while it made a filing with the Commission 
on form FERC-65A providing notice of its status as a holding company, 
this was done out of an abundance of caution under PUHCA 2005, not the 
FPA, and the filing should have not determined whether Horizon is a 
holding company under the FPA. Horizon also states that it is not 
evident that its actions in filing a form FERC-65A can confer 
jurisdiction on the Commission or that Horizon can concede jurisdiction 
even if it wished to do so.
2. Commission Determination
    23. As an initial matter, we note that in certain respects this 
case represents an issue of first impression because the Commission has 
not previously clearly addressed the meaning of ``to purchase, acquire 
or take any security'' under FPA section 203(a)(2). While the 
Commission has acted on a number of requests for blanket authorizations 
to purchase, acquire or take securities, it either has been clear in 
those contexts that entities would be ``purchasing, acquiring or 
taking'' securities within the common (dictionary) meaning of those 
terms, or entities have filed for approval as a precautionary matter 
and the Commission has acted without analysis or discussion of these 
statutory terms. In particular, the Commission has not specifically 
opined on whether an investment adviser is considered to be an entity 
that ``purchases, acquires, or takes'' securities in circumstances 
where the adviser is not itself a security account holder, the security 
account holders have delegated the power to vote securities to the 
financial adviser, but the financial adviser generally defers to 
another entity that it engages to vote the securities (as in this case, 
discussed below, Institutional Shareholder Services). The Commission 
for the first time in this docket addresses the meaning of the 
``purchase, acquire, or take any security'' clause of FPA section 
203(a)(2).
    24. Horizon starts from the premise that because the FPA does not 
define the terms ``purchase,'' ``acquire,'' or ``take,'' one must 
assume that their legislative purpose is expressed in their ordinary 
meaning viewed in light of the ``object and policy'' of the statute. 
Horizon discusses the dictionary definitions of these terms, but it 
fails to view them in light of the underlying purpose of section 
203(a)(2) and the interrelationship between this section and PUHCA 
2005. Instead of attempting to place the ordinary meanings of these 
terms in their statutory context, Horizon considers the meaning of 
``purchase, acquire, or take,'' in the abstract, i.e., as they are 
presented in the dictionary, then claims that it does not engage in any 
of the actions described in the dictionary, and finally argues in the 
alternative that even if it does engage in these actions, it is not a 
holding company for these purposes. This approach is particularly 
problematic when dealing with terms as general as ``purchase,'' 
``acquire,'' or ``take'' since the meaning of these terms can vary 
widely depending on the context in which they appear.
    25. The relevant context here is one where a holding company 
purchases, acquires, or takes something, and this means that we must 
first address Horizon's assertion that it is not a holding company for 
purposes of the Federal Power Act. Only when that question is answered 
can one determine whether, in light of the purpose underlying FPA 
section 203(a)(2), it is reasonable to conclude that Horizon's 
activities fall within the ``purchase, acquire, or take'' language of 
section 203(a)(2). Horizon argues that it is not a holding company, 
i.e., it does not directly or indirectly own, control, or hold with 
power to vote 10 percent or more of a public utility company or holding 
company's voting securities, because it does not purchase, acquire or 
take such securities.\26\ However, the terms ``purchase,'' ``acquire,'' 
or ``take'' do not appear in the definition of a holding company, and 
therefore whether Horizon is a holding company must be decided 
independently of them based on the applicable statutory definition.
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    \26\ Application at 10.
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    26. The facts that Horizon presents make it clear that it is a 
holding company. Section 203(a)(6) of the FPA states that for purposes 
of section 203, the term holding company has the meaning given to it in 
PUHCA 2005.\27\
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    \27\ 16 U.S.C. 824b(a)(6) (2006).
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    27. PUHCA 2005 defines a holding company in section 1262(8)(i) as a 
company that ``directly or indirectly owns, controls, or holds, with 
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.\28\ Horizon's Account Holders have delegated to 
it the power to vote the securities in question, and it therefore holds 
those securities with the power to vote them. Horizon's choice to defer 
in most cases to Institutional Shareholder Services on how to vote the 
securities does not alter the fundamental facts because it has reserved 
the right to override the recommendations of Institutional Shareholder 
Services and, in any case, Horizon nowhere suggests that the delegation 
is irrevocable.
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    \28\ The applicable statutory definition states that that the 
term ``holding company'' means:
    (i) Any company that directly or indirectly owns, controls, or 
holds, with 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; and
    (ii) Any person, determined by the Commission, after notice and 
opportunity for hearing, to exercise directly or indirectly (either 
alone or pursuant to an arrangement or understanding with one or 
more persons) such a controlling influence over the management or 
policies of any public-utility company or holding company as to make 
it necessary or appropriate for the rate protection of utility 
customers with respect to rates that such person be subject to the 
obligations, duties, and liabilities imposed by this subtitle upon 
holding companies.
    42 U.S.C. 16451(8) (2006).
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    28. Horizon in fact concurs with our determination because it has 
previously conceded in filings made at the Commission that it ``is a 
holding company under PUHCA 2005 because, in its capacity as investment 
adviser to certain accounts it has power to vote more than ten percent 
of the outstanding voting securities of Aquila, Inc.'' \29\ Horizon now 
states that its filings were made out of an abundance of caution under 
PUHCA 2005, not the FPA, and it therefore should not be found to be a 
holding company under the FPA. For the reasons stated above, we 
disagree that Horizon does not fall within the PUHCA 2005 definition of 
holding company. Further, as noted above, section 203(a)(6) of the FPA 
states that for purposes of section 203, the term holding company has 
the meaning given to it in PUHCA 2005. To be a holding company for 
purposes of

[[Page 71635]]

PUHCA 2005 is therefore to be a holding company for purposes of FPA 
section 203(a)(2).
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    \29\ See June 15, 2006 filing by Horizon in Docket No. PH06-90-
000.
---------------------------------------------------------------------------

    29. We thus reject the claim that Horizon's filing of a form FERC-
65A is not indicative of whether Horizon is a holding company under the 
FPA. Horizon nowhere references in its original form FERC-65A filing 
that it filed out of an abundance of caution and makes the claim for 
the first time here. Horizon has previously conceded, and does not 
dispute here, that it holds 10 percent or more of a holding company's 
voting securities with power to vote. In light of this, Horizon is a 
holding company under PUHCA 2005 and, by virtue of section 203(a)(6), 
it is also a holding company for purposes of section 203(a)(2).
    30. We also reject Horizon's argument that it is not a holding 
company because it does not exert any controlling influence over the 
management of any public utility company or holding company. PUHCA 2005 
treats as a holding company any company that directly or indirectly 
owns, controls, or holds with power to vote 10 percent or more of the 
voting securities of a public utility company or of a public utility 
holding company. Such companies are deemed to be holding companies 
regardless of whether the facts of their particular situation prevent 
them from exercising control. While the PUHCA 2005 definition of 
holding company also gives the Commission additional powers to 
determine an entity to be a holding company where it has a controlling 
influence over management or policies of a public utility company, this 
authority pertains to situations where the entity does not fall within 
the formal definition of a holding company set forth in PUHCA 2005 
section 1262(8)(A)(i), but there is nevertheless a reason to treat that 
entity as a holding company. Since Horizon falls within the formal 
definition, there is no reason to consider whether Horizon ``controls'' 
a public-utility company for purposes of determining that it is a 
holding company.
    31. Having concluded that Horizon is a public utility holding 
company, we now turn to whether the activities in which it engages 
constitute the purchase, acquisition, or taking of securities within 
the meaning of FPA section 203(a)(2). While we agree that dictionary 
definitions are a starting point of the analysis where, as here, the 
terms ``purchase, acquire, or take'' are not defined in either the FPA 
or PUHCA, nevertheless the terms must also be given meaning in light of 
the statutory context and purposes of FPA section 203(a)(2). Taking 
into account the simultaneous repeal of PUHCA 1935 and enactment of 
additional corporate review authority in the FPA--and specifically the 
addition of section 203(a)(2) of the FPA which pertains to certain 
public utility holding company investments--the Commission concludes 
that it is reasonable to read the terms ``purchase, acquire, or take'' 
sufficiently broadly to permit the Commission to adequately protect 
energy customers of public-utility companies and transmitting 
utilities. EPAct 2005's repeal of PUHCA 1935 and enactment of a ``books 
and records'' holding company statute in the form of PUHCA 2005 were 
intended to remove certain barriers to investment in the electric 
industry. However, at the same time, Congress added section 203(a)(2) 
to the FPA to ensure adequate Federal oversight of certain holding 
company transactions involving public-utility companies and 
transmitting utilities. Were the Commission to interpret new section 
203(a)(2) to exclude the types of investment activities engaged in by 
Horizon or by similar investment advisers that, like Horizon, are 
holding companies, it is possible that such holding companies could 
exercise control over public-utility companies or transmitting 
utilities in a way that harms energy customers.\30\
---------------------------------------------------------------------------

    \30\ With regard to the consumer protection purposes of EPAct 
2005, Senator Bingaman stated:
    I am a strong supporter of section 1289 [the section of EPAct 
2005 that is codified at FPA section 203(a)(2)] because I believe it 
is vital, especially since we are repealing the Public Utility 
Holding Company Act [of 1935], that FERC be given the authority it 
needs to protect U.S. consumers. In my opinion, section 1289 gives 
FERC the appropriate authority to ensure that utility mergers and 
acquisition do not adversely impact consumers.
    151 Cong. Rec. S9359 (daily ed. July 29, 2005) (statement of 
Sen. Bingaman).
---------------------------------------------------------------------------

    32. If the critical mark of a holding company is that it owns, 
controls, or holds securities with power to vote them, then what it 
means to purchase, acquire or take securities must be considered in 
light of that fact. As Horizon notes, to ``acquire'' is normally 
defined as ``[t]o gain possession or control of; to get or obtain,'' 
\31\ or to ``get or gain by one's own efforts[;] to come to have as 
one's own; get possession of.'' \32\ It also notes that to take 
something means, in part, to ``obtain possession or control'' of 
it.\33\ We do not see how Horizon could hold securities with power to 
vote them if it did not gain possession or control of them, i.e., if it 
did not ``acquire'' or ``take'' them.\34\ The fact that Horizon does 
not acquire all the rights in the bundle of rights that constitute a 
property interest in these securities does not mean that it does not 
acquire them for purposes of section 203(a)(2). What matters is that it 
acquires rights that bring it within the definition of, and thus make 
it, a holding company, i.e. voting rights. Moreover, such rights could 
(but may not necessarily) result in the exercise of control over a 
public utility company. It is thus reasonable to conclude that Congress 
intended section 203(a)(2) to require Commission approval of such 
securities transactions and to find that Horizon acquires the 
securities for purposes of section 203(a)(2). We believe this 
interpretation is consistent with the protective, prophylactic purpose 
of section 203(a)(2) and that this authority can be exercised in a way 
that balances both the investment and consumer protection purposes 
envisioned in the EPAct 2005 amendments.
---------------------------------------------------------------------------

    \31\ See supra n.15.
    \32\ See supra n.16.
    \33\ See supra n.18.
    \34\ We note in this connection that while Horizon sometimes 
states that it ``delegates'' the power to vote the shares it holds 
to Institutional Shareholder Services, there is no evidence of a 
delegation of legal rights or powers. On the contrary, as noted 
above, Horizon retains the power to override Institutional 
Shareholder Services' voting recommendations. In addition, Horizon 
represents in the Schedule 13G filings it has made in connection 
with its holdings of Reliant, Sierra Pacific, and Aquila that it has 
``sole voting power'' with respect to these shares. See supra n.21.
---------------------------------------------------------------------------

    33. Finally, while we recognize that FPA section 203(a)(2) does not 
contain broad, catch-all language such as ``or otherwise obtain 
securities'' (i.e., broad language to parallel the ``or otherwise 
dispose'' language of FPA section 203(a)(1)), we do not find this 
determinative of the specific issue before us. Nor do we find 
determinative the fact that the Commission has found that section 
203(a)(2) applies to direct rather than indirect acquisitions. Our 
conclusion here rests on our finding that Horizon itself, and not an 
entity in which Horizon has an interest, acquires and holds the 
securities with the power to vote.

B. Blanket Authorization Under Section 203

    34. Section 203(a) of the FPA provides that the Commission must 
approve a transaction if it finds that the transaction ``will be 
consistent with the public interest.'' \35\ The Commission's analysis 
of whether a transaction is consistent with the public interest 
generally involves consideration of three factors: (1) The effect on 
competition; (2) the effect on rates; and (3) the effect on 
regulation.\36\ In

[[Page 71636]]

addition, EPAct 2005 amended section 203 to specifically require that 
the Commission also determine that the transaction will not result in 
cross-subsidization of a non-utility associate company or the pledge or 
encumbrance of utility assets for the benefit of an associate company, 
unless the Commission determines that the cross-subsidization, pledge, 
or encumbrance will be consistent with the public interest.\37\ The 
Commission's regulations establish verification and informational 
requirements for applicants that seek a determination that a 
transaction will not result in inappropriate cross-subsidization or 
pledge or encumbrance of utility assets.\38\
---------------------------------------------------------------------------

    \35\ 16 U.S.C. 824b (2006).
    \36\ See Inquiry Concerning the Commission's Merger Policy Under 
the Federal Power Act: Policy Statement, Order No. 592, 61 FR 68,595 
(1996), FERC Stats. & Regs.; ] 31,044 (1996), reconsideration 
denied, Order No. 592-A, 62 FR 33,341 (1997), 79 FERC ] 61,321 
(1997) (Merger Policy Statement); see also Revised Filing 
Requirements Under Part 33 of the Commission's Regulations, Order 
No. 642, 65 FR 70,983 (2000), FERC Stats. & Regs., Regulations 
Preambles July 1996-Dec. 2000 ] 31,111 (2000), order on reh'g, Order 
No. 642-A, 66 FR 16,121 (2001), 94 FERC ] 61,289 (2001); see also 
Transactions Subject to Federal Power Act Section 203, Order No. 
669, 71 FR 1348 (2006), FERC Stats. & Regs. ] 31,200 (2005), order 
on reh'g, Order No. 669-A, 71 FR 28,422 (2006), FERC Stats. & Regs. 
] 31,214 (2006) (Order No. 669-A), order on reh'g, Order No. 669-B, 
71 FR 42,579 FERC Stats. & Regs. ] 31,225 (2006).
    \37\ 16 U.S.C. 824b(a)(4) (2006).
    \38\ 18 CFR 33.2(j) (2008).
---------------------------------------------------------------------------

    35. As discussed below, we dismiss Horizon's request for blanket 
authorization under section 203(a)(1) as unnecessary. We also find 
Horizon's request for blanket authorization under section 203(a)(2) to 
be consistent with the public interest and approve that request for a 
period of three years. In addition, we deny the request for retroactive 
approval under section 203(a)(2) of Horizon's holdings in excess of 10 
percent of the outstanding voting shares of Reliant, Sierra Pacific, 
and Aquila.
1. Blanket Authorization Under Section 203(a)(1)
    36. Horizon requests blanket authority under section 203(a)(1) for 
utilities or holders of utility voting securities to sell such 
securities to Horizon or, on behalf of the Account Holders, to entities 
acting on the basis of Horizon's instructions or advice subject to 
certain conditions.\39\
---------------------------------------------------------------------------

    \39\ Section 203(a)(1) reads as follows:
    (1) 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 $10,000,000;
    (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 $10,000,000 of any other public utility; or
    (D) Purchase, lease, or otherwise acquire an existing generation 
facility--
    (i) That has a value in excess of $10,000,000; and
    (ii) That is used for interstate wholesale sales and over which 
the Commission has jurisdiction for ratemaking purposes.
    16 U.S.C. 824b(a)(1) (2006).
---------------------------------------------------------------------------

    37. We dismiss the request for blanket authorization under section 
203(a)(1) as unnecessary.\40\ We have clarified that transactions that 
do not transfer control of a public utility or jurisdictional 
facilities do not fall within the ``or otherwise dispose'' language of 
section 203(a)(1)(A) and thus do not require approval under section 
203(a)(1)(A).\41\ With the conditions imposed in granting Horizon's 
request for section 203(a)(2) authorization, we find that the 
transactions under the blanket authorization requested by Horizon will 
not result in the change in control of a public utility or 
jurisdictional facilities, or the sale, lease or merger of a public 
utility or jurisdictional facilities.\42\ Therefore, we dismiss, as 
unnecessary, Horizon's request for authorization under section 
203(a)(1).
---------------------------------------------------------------------------

    \40\ See Legg Mason, 121 FERC ] 61,061 at P 18.
    \41\ FPA section 203 Supplemental Policy Statement, FERC Stats. 
& Regs. ] 31,253 at P 37 (2007).
    \42\ We note that the transactions under the blanket 
authorization requested by Horizon pursuant to section 203(a)(2) do 
not implicate sections 203(a)(1)(C) or 203(a)(1)(D), which apply to 
public utilities' acquisitions of public utility securities and 
generating facilities.
---------------------------------------------------------------------------

2. Analysis Under Section 203(a)(2)
a. Effect on Competition
i. Horizon's Analysis
    38. Horizon requests blanket authorization under section 203(a)(2) 
for the acquisition of securities of public utilities, electric utility 
companies, transmitting utilities or a holding company in a holding 
company system that includes an electric utility company or 
transmitting utility subject to certain conditions. Horizon argues that 
the proposed blanket authorizations will not adversely affect 
competition because the commitments it makes in the application, 
Horizon's fiduciary obligation, the internal policies it has in place, 
as well as applicable securities law, will prevent Horizon from 
exercising control over the companies in which it invests.
    39. Horizon states that under section 13 of the 1934 Act,\43\ any 
person acquiring more than five percent of the beneficial ownership of 
any class of equity securities traded on a public exchange must file 
with the SEC on either Schedule 13D or 13G providing certain 
information concerning the acquirer's intentions and purposes with 
respect to the acquisition. Schedule 13G requires the filer to certify 
that the securities in question have been acquired

    \43\ 15 U.S.C. 78m (2000).
---------------------------------------------------------------------------

    In the ordinary course of * * * [its] business and not with the 
purpose nor with the effect of changing or influencing the control 
of the issuer, nor in connection with or as a participant in any 
transaction having such a purpose or effect * * *.\44\
---------------------------------------------------------------------------

    \44\ 17 CFR 240.13d-1(b)(1)(i) (2008).

    40. Horizon states that, if the intentions of a filer of a Schedule 
13G change, the filer must notify the SEC of this fact and wait for a 
``cooling off'' period\45\ before attempting to exercise control over 
the security issuer. Horizon also states that the SEC has provided 
guidance that makes it clear that any activity designed to replace the 
issuing company's management or influence the day-to-day commercial 
conduct of its business constitutes an attempt to control and therefore 
renders the acquiring person ineligible to file Schedule 13G.
---------------------------------------------------------------------------

    \45\ Under 17 CFR 240 13d-1(e)(2), the ``cooling off'' period is 
10 days.
---------------------------------------------------------------------------

    41. Horizon states that it currently notifies the SEC of reportable 
transactions under the 1934 Act using Schedule 13G, and it is 
completely prohibited from exercising control over any public utility 
whose securities are covered by the Schedule 13G filing. The filing of 
Schedule 13G by a person having the intention or purpose of exercising 
control over the issuer is said to be a violation of the 1934 Act and 
exposes the filer to possible civil and criminal liability. Horizon 
states that it has never had and does not now have any intention to 
exercise control over any public utility or public utility holding 
company.
    42. As noted above, Horizon commits to maintain its eligibility to 
make Schedule 13G filings with the SEC pursuant to SEC rules under the 
1934 Act and, when appropriate, will make such 13G filings with respect 
to securities of public utilities and public utility holding companies 
and contemporaneously file a copy with the Commission. Horizon also 
will file with the Commission any comment or deficiency letters 
received from the SEC that concern Schedule 13G-related compliance 
audits conducted by the SEC.
    43. Horizon also states that, as a registered investment adviser, 
it could

[[Page 71637]]

also be subject to an enforcement action under the Investment Advisers 
Act \46\ if it exercised control over any public utility. Horizon 
states that under the Investment Advisers Act, investment advisers are 
required to provide full disclosure of material information to 
investors. If Horizon were or was planning to be ``in the energy 
business,'' or a ``public utility,'' or if Horizon were engaging in or 
was planning to engage in acts which would render it ineligible to file 
Schedule 13G, this information would have to be disclosed to investors. 
In addition, as a registered investment adviser regulated by the SEC, 
Horizon states that it is required to provide Part II of its Form ADV 
(or a document containing at a minimum the information contained in 
Part II) to its current and prospective clients, which must include a 
disclosure of all material facts and information so that an investor 
can make an informed investment decision. Further, as a fiduciary, 
Horizon states that it is obligated to make sure that the information 
contained in its Form ADV does not omit information regarding its 
investment strategies that a reasonable investor would find relevant.
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 80b-1 et seq. (2000).
---------------------------------------------------------------------------

    44. In addition, Horizon has proposed the conditions, listed in P 8 
above, that are intended to prevent the exercise of control over 
jurisdictional facilities.
ii. Commission Determination
    45. When combined with other factors, the Commission has previously 
relied upon an applicants' filing of Schedule 13G, along with the 
associated regulatory and enforcement regime administered by the SEC, 
to ensure that the applicant would not exercise control over public 
utilities or public utility holding companies.\47\ Horizon similarly 
proposes use of Schedule 13G along with other measures as support for 
its request for blanket authorization under section 203(a)(2). Under 
the conditions Horizon proposes, all security purchases made pursuant 
to the requested blanket authorization will be of publicly traded 
securities for which Horizon will maintain eligibility to file Schedule 
13G. Horizon states that it has never filed a Schedule 13D and proposes 
the condition that it will not take action which would require it to 
file a Schedule 13D with the SEC with respect to the securities of any 
public utility or public utility holding company. Horizon also commits 
to maintain its policies and to comply with applicable statutory 
prohibitions against exercising control over companies whose securities 
are acquired for Horizon Account Holders.
---------------------------------------------------------------------------

    \47\ See, e.g., Legg Mason, 121 FERC ] 61,061 at P 26-30; 
Goldman Sachs, 121 FERC ] 61,059 at P 30-41; Morgan Stanley, 121 
FERC ] 61,060 at P 37-49; CMRC, 116 FERC ] 61,267 at P 16-20.
---------------------------------------------------------------------------

    46. Horizon also proposes to include language in its Form ADV, its 
Policies and Procedures Manual, its annual letter to Account Holders, 
and all future Account Holder Agreements explicitly providing that 
Horizon shall not exercise the shareholder voting rights delegated to 
Horizon by Account Holders, or act in any other way, to exercise 
control over any public utility or any public utility holding 
company.\48\ With that language in place, actions by Horizon in 
violation of it would subject Horizon to potential legal action by both 
the SEC and the Account Holders, in addition to appropriate action by 
the Commission.
---------------------------------------------------------------------------

    \48\Horizon pledges not to change or withdraw the language 
without providing the Commission with a least 90 days notice. We 
will accept that commitment. If prior authorization under section 
203 is necessary, the Commission will require Horizon to file an 
appropriate application under section203.
---------------------------------------------------------------------------

    47. We will accept Horizon's proposed conditions restricting the 
holdings of the voting securities of any public utility or public 
utility holding company to less than 10 percent in an individual 
Horizon account and to no more than 19.99 percent for Horizon or any 
affiliated entity having voting power, since these conditions are 
similar to limits on ownership that the Commission has placed on 
holdings of public utilities or public utility holding companies by 
firms who are investment advisers or engage in similar activities.\49\ 
The Commission will require the 19.99 percent limit on holdings for 
Horizon or any affiliated entity having voting power to be interpreted 
as the maximum which Horizon and affiliated entities may cumulatively 
hold.
---------------------------------------------------------------------------

    \49\ See, e.g., Legg Mason, 121 FERC ] 61,061 at P 22 and CRMC, 
116 FERC ] 61,267--at--P 20.
---------------------------------------------------------------------------

    48. Efforts by Horizon to use its voting power from security 
holdings to exercise control over public utilities or public utility 
holding companies will be further limited by Horizon's proposed 
condition that it will exercise its voting power in a way that is 
consistent with its fiduciary duties to its Account Holders, and to 
maintain readily auditable records of the voting of the shares.
    49. We will also accept Horizon's commitment to file 
contemporaneously with the Commission a copy of relevant Schedule 13G 
filings made to the SEC, and to file with the Commission any comment or 
deficiency letters received from the SEC. We will also accept Horizon's 
commitment to provide the Commission with quarterly reports of security 
holdings of public utilities and public utility holding companies. We 
will also require that any changes in the information provided on the 
initial Schedule 13G be reflected in an annual amended filing due 
within 45 days of the end of each calendar year. With this additional 
requirement, the Schedule 13G-related filings and quarterly 
informational filings of the holdings of securities are similar to 
those previously required of firms similar to Horizon which requested 
blanket authorizations under section 203.\50\ In addition, records that 
may be useful in any future audit will be accessible though Horizon's 
proposal to keep records of its transactions concerning public utility 
securities as required by the Investment Advisers Act. We accept this 
commitment.
---------------------------------------------------------------------------

    \50\ See, e.g., Legg Mason, 121 FERC ] 61,061 at P 30, CRMC, 116 
FERC ] 61,267 at P 30, and Ecofin Holdings Limited, 120 FERC ] 
61,189 at P 41 (2007).
---------------------------------------------------------------------------

    50. We find that, with the conditions proposed by Horizon and 
accepted here, as modified above, Horizon will be unable to exercise 
control over the public utilities and public utility holding companies 
whose securities are acquired under the blanket authorization requested 
under section 203(a)(2). Thus, we find that the transactions under that 
requested blanket authorization have no adverse effect on competition.
b. Effect on Rates
i. Horizon's Analysis
    51. Horizon argues that the acquisition of securities pursuant to 
the requested blanket authorization will have no adverse effect on 
rates of wholesale customers or retail electric service customers 
because, as Horizon will not acquire or exercise control over any 
utility, it will have no role in the setting of rates by such entities. 
Further, Horizon argues that acquisition of securities pursuant to the 
requested blanket authorization will not affect the market-based or 
cost-based rates of the utilities in which the Account Holders will be 
investing.
ii. Commission Determination
    52. We find that the transactions under the blanket authorization 
requested by Horizon under section 203(a)(2) will not have an adverse 
effect on rates for the reasons set forth by Horizon above.
c. Effect on Regulation
i. Horizon's Analysis
    53. Horizon argues that the acquisition of securities pursuant to 
the

[[Page 71638]]

requested blanket authorization will have no adverse effect on 
regulation either by the Commission or by state regulatory authorities 
because the acquisition will not result in any change in the 
activities, corporate structure, or control of a utility that might 
affect its jurisdictional status under either federal or state law. 
Horizon further argues that, because no exercise of control is 
involved, Horizon is and will be in no position to cause a utility to 
take action which would have an adverse effect on regulation.
ii. Commission Determination
    54. We find that the transactions under the blanket authorization 
requested by Horizon under section 203(a)(2) will not have an adverse 
effect on regulation for the reasons set forth by Horizon above.
d. Cross-subsidization
i. Horizon's Analysis
    55. Horizon argues that the acquisition of securities pursuant to 
the requested blanket authorization will not result in cross-
subsidization of a non-utility associate company or the pledge or 
encumbrance of utility assets for the benefit of an associate company 
because Horizon and the Account Holders will be non-controlling 
investors in utilities with no ability to improperly cause or direct 
the utilities in which they have an interest to cross-subsidize their 
non-utility associate companies or to pledge or encumber their assets.
    56. Horizon further states that the transactions pursuant to the 
requested blanket authorization will not result in any: (1) Transfers 
of facilities between a traditional public utility associate company 
that has captive ratepayers or that owns or provides transmission 
service over jurisdictional transmission facilities, and an associate 
company; (2) new issuances of securities by traditional public utility 
associate companies that have captive customers or that own or provide 
transmission service over jurisdictional transmission facilities, for 
the benefit of an associate company; (3) new pledges or encumbrances of 
assets of a traditional public utility associate company that has 
captive customers or that owns or provides transmission service over 
jurisdictional transmission facilities, for the benefit of an associate 
company; or (4) new affiliate contracts between non-utility associate 
companies and traditional public utility associate companies that have 
captive customers or that own or provide transmission service over 
jurisdictional transmission facilities, other than non-power goods and 
services agreements subject to review under sections 205 and 206 of the 
FPA.
ii. Commission Determination
    57. We find that the transactions under the blanket authorization 
requested by Horizon under section 203(a)(2) will not result in cross-
subsidization or the pledge or encumbrance of utility assets for the 
benefit of an associate company for the reasons set forth by Horizon 
above.
e. Authorization Period
i. Applicant's Request
    58. Horizon requests the Commission to grant a permanent blanket 
authorization.
ii. Commission Determination
    59. We will grant Horizon's blanket authorization for a three-year 
period, rather than on a permanent basis. We find that a three-year 
limitation balances Horizon's need to operate under the requested 
authorizations with our duty to provide adequate regulatory oversight 
under section 203 of the FPA, particularly as we continue to gain 
experience with FPA section 203(a)(2) authorizations. Accordingly, the 
authorizations expire three years from the date of this order, without 
prejudice to requests to extend the authorizations.
f. Request for Retroactive Authorization
i. Horizon's Request
    60. Horizon requests retroactive authorization for the holdings in 
excess of 10 percent of the voting shares of Reliant, Sierra Pacific, 
and Aquila. Horizon states that the decision to direct the accounts 
under its management to acquire stock of Reliant, Sierra Pacific, and 
Aquila was in no way an indication of any intention to exercise control 
over such companies. Horizon states that its investment decision in 
this regard was motivated solely by its analysis of the value of those 
securities as passive investments.
ii. Commission Determination
    61. Section 203(a)(2) of the FPA requires Commission approval 
before a public utility holding company purchases, acquires, or takes 
any security (with a value in excess of $10 million) of a transmitting 
utility, an electric utility company, or a public utility holding 
company in a holding company system that includes a transmitting 
utility or an electric utility company having a value in excess of $10 
million. Acquiring securities without prior Commission authorization is 
directly contrary to statutory requirements. Therefore, the Commission 
denies the request for retroactive approval under 203(a)(2) of 
Horizon's holdings in excess of 10 percent of the voting shares of 
Reliant, Sierra Pacific, and Aquila. Although we are denying 
retroactive approval, we recognize that prior to this case the 
Commission had not directly or clearly addressed the scope and meaning 
of the ``purchase, acquire, or take any security'' clause of section 
203(a)(2) and therefore we will not impose sanctions on Horizon for 
failing to obtain advance Commission approval in these circumstances. 
Now that we have clarified our jurisdiction, however, Horizon and all 
similar companies that acquire or hold securities on behalf of account 
holders are on notice that we consider the types of transactions 
described in Horizon's petition to be jurisdictional under FPA section 
203(a)(2), thus requiring prior approval, and we will consider 
sanctions including possible monetary penalties to companies that do 
not obtain advance approval. Finally, we remind companies that if there 
is any question as to whether particular securities acquisitions fall 
under section 203(a)(2), they may seek a determination from the 
Commission through a petition for a declaratory order or other 
appropriate procedural mechanism.
    62. As noted above, because not all investment companies and 
advisers may have been aware of our interpretation of the Commission's 
jurisdiction under the ``purchase, acquire, or take any security'' 
clause of section 203(a)(2) to require prior authorization for the 
acquisition of public utility securities as discussed in this order, we 
will allow any such affected entity to file within 90 days of the date 
of the publication of this order in the Federal Register an application 
requesting such authorization. After that time, the failure to make a 
timely filing may result in subjecting the entity in question to 
sanctions.
    The Commission orders:
    (A) The Commission rejects the request for a disclaimer of 
jurisdiction. The Commission also denies the request for retroactive 
approval under section 203(a)(2) of Horizon's holdings in excess of 10 
percent of the voting shares of Reliant, Sierra Pacific, and Aquila. In 
addition, the Commission hereby dismisses the request for blanket 
authorization under FPA section 203(a)(1) and grants the request for 
blanket authorization under section 203(a)(2) for a period of three 
years from the date of this order, without prejudice to requests to 
extend the authorization, as discussed in the body of the order.

[[Page 71639]]

    (B) Transactions under the blanket authorizations are subject to 
the terms and conditions and quarterly reporting requirements and for 
the purposes set forth in the Application, as discussed and modified in 
the body of this order.
    (C) The foregoing authorizations are without prejudice to the 
authority of the Commission or any other regulatory body with respect 
to rates, service, accounts, valuation, estimates, or determinations of 
costs, or any other matter whatsoever now pending or which may come 
before the Commission.
    (D) Nothing in this order shall be construed to imply acquiescence 
in any estimate or determination of costs or any valuation of property 
claimed or asserted.
    (E) The Commission retains authority under sections 203(b) and 309 
of the FPA to issue supplemental orders as appropriate.
    (F) Horizon is subject to audit to determine whether it is in 
compliance with the representations, conditions and requirements upon 
which the authorizations are herein granted and with applicable 
Commission rules, regulations and policies. In the event of a 
violation, the Commission may take action within the scope of its 
oversight and enforcement authority.
    (G) Horizon shall file with the Commission, for informational 
purposes, contemporaneously with filing at the SEC the Schedule 13G 
filings made with the SEC that are relevant to the authorizations 
granted in this order. Any changes in the information provided on the 
initial Schedule 13G must be reflected in an annual amended filing due 
within 45 days of the end of each calendar year. Horizon shall file 
with the Commission any comment or deficiency letters received from the 
SEC that concern Schedule 13G-related compliance audits conducted by 
the SEC. Such filings shall be made in this docket or in appropriate 
sub-dockets of this docket.
    (H) Horizon shall file with the Commission, for informational 
purposes, within 45 days of the end of each calendar quarter, a 
quarterly report of securities of public utilities and public utility 
holding companies as of the last day of the calendar quarter stated in 
terms of the number of shares held as of the end of the quarter and as 
a percentage of the outstanding shares.
    (I) Horizon shall retain the records of its transactions concerning 
public utility securities as required under the Investment Advisers 
Act.
    (J) Horizon must inform the Commission, within 30 days, of any 
material change in circumstances that would reflect a departure from 
the facts, policies, and procedures the Commission relied upon in 
granting the request and specifying the terms and conditions under 
which the blanket authorization, as set forth in section 33.1(c)(5) of 
the Commission's regulations, will be available to them.
    (K) The Secretary is directed to publish a copy of this order in 
the Federal Register.

    By the Commission.
Kimberly D. Bose,
Secretary.
[FR Doc. E8-27984 Filed 11-24-08; 8:45 am]

BILLING CODE 6717-01-P