[Federal Register: January 6, 2006 (Volume 71, Number 4)]
[Rules and Regulations]
[Page 1347-1376]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06ja06-6]
[[Page 1347]]
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Part III
Department of Energy
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Federal Energy Regulatory Commission
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18 CFR Parts 2 and 33
Transactions Subject to FPA Section 203; Final Rule
[[Page 1348]]
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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.
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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\
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\1\ 16 U.S.C. 824b (2000).
DATES: Effective Date: This Final Rule will become effective on
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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
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Paragraph Nos.
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I. Introduction....................................... 1.
II. Background........................................ 5.
A. Commission Merger Policy Before Effective Date 5.
of Amended FPA Section 203.......................
B. Section 203 As Amended By EPAct 2005........... 15.
C. Notice of Proposed Rulemaking on Transactions 25.
Subject to FPA Section 203.......................
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 33.
Company,'' ``Holding Company,'' ``Holding Company
System,'' ``Transmitting Utility,'' and
``Electric Utility Company''.....................
3. Section 33.1(b)--Definition of ``Existing 74.
Generation Facility''............................
4. Section 33.1(b)--Definition of ``Non-Utility 88.
Associate Company''..............................
5. Section 33.1(b)--Definition of ``Value''....... 94.
6. Compliance with Section 203.................... 127.
7. Cash Management Arrangements, Intra-Holding 133.
Company System Financing, Securities Under
Amended Section 203, and Blanket Authorizations..
8. Section 33.2(j)--General Information 146.
Requirements Regarding Cross-Subsidization.......
9. Section 33.11--Commission Procedures for 172.
Consideration of Applications under Section 203
of the FPA.......................................
B. Amendments to 18 CFR 2.26--The Merger Policy 195.
Statement........................................
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.
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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.
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\2\ Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594
(2005).
\3\ EPAct 2005 Sec. Sec. 1281 et seq.
\4\ 16 U.S.C. 824b (2000).
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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.
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\5\ Transactions Subject to FPA Section 203, 70 FR 58,636
(October 7, 2005), FERC Stats. & Regs. ] 32,589 (2005).
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3. In this Final Rule, the Commission adopts some of the proposals
in the
[[Page 1349]]
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 cross-
subsidization 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.
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\6\ EPAct 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).
\7\ PUHCA 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.
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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.
\8\ EPAct 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.
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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.
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\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).
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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.
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\10\ Although 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).
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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.
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\11\ U.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).
\12\ Merger Policy Statement at 30,119-20.
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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\
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\13\ See id. at 30,121-24.
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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\
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\14\ 15 U.S.C. 79a et seq. (2000).
\15\ Merger 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.
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[[Page 1350]]
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.
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\16\ Revised 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).
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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\
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\17\ Filing 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.
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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\
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\18\ Id. at 31,873.
\19\ Id. at 31,876.
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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 cross-subsidization of a non-utility
associate company or pledge or encumbrance of utility assets for the
benefit of an associate company, unless that cross-subsidization,
pledge, or encumbrance will be consistent with the public interest.
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\
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\20\ Id. Sec. Sec. 1261, 1274. PUHCA 2005 Final Rule at P 1.
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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\
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\21\ Section 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.
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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
[[Page 1351]]
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\
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\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.
\23\ The commenters are listed in an appendix to this order.
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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\
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\24\ Because 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.
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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.
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\25\ PUHCA 2005 Sec. 1266(a).
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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.
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\26\ Russello v. United States, 464 U.S. 16, 23 (1983) (internal
citations omitted).
\27\ EPSA Comments at 5.
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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
[[Page 1352]]
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\
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\28\ EPAct 2005 Sec. 1262(5).
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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\
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\29\ E.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).
\30\ EPAct 2005 1291(b)(22).
\31\ 16 U.S.C. 824a-3 (2000).
\32\ See, 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.
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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.
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\33\ E.g., E.ON, Chairman Barton, and Suez.
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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\
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\34\ E.g., EEI, Entergy, E.ON, Independent Sellers, National
Grid, Progress Energy, and Scottish Power (citing, e.g., PUHCA 2005
Sec. Sec. 1264 & 1266).
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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\
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\35\ See, e.g., Chairman Barton Comments at 3.
\36\ E.g., Chairman Barton, EEI, Hawaiian Electric Company, Inc.
(HECO), National Association of Regulatory Utility Commissioners
(NARUC), National Grid, PNM, and Progress Energy.
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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.
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\37\ E.g., American Chemistry Counsel (ACC), APPA/NRECA, EPSA,
GE EFS, Independent Sellers, and Transmission Access Policy Study
Group (TAPSG).
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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
[[Page 1353]]
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\
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\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.
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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.
---------------------------------------------------------------------------
\40\ Public Citizen Comments at 10.
\41\ Id. at 10-11.
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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\
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\42\ EPAct 2005 1289(a).
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.
---------------------------------------------------------------------------
\43\ See 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 Sec. 46.06 (N. Singer
6th Ed. 2000 Revision) (a statute must be construed so that no part
will be void or insignificant).
---------------------------------------------------------------------------
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.
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\44\ Commenters' alternative proposed definitions are also
discussed below in the specific context of the requested exemptions
of foreign transactions.
\45\ While both the FPA and PURPA contain definitions of
``electric utility,'' neither contains a definition of ``electric
utility company.''
\46\ See, 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'').
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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
[[Page 1354]]
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 cross-subsidize
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.
---------------------------------------------------------------------------
\47\ The 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).
---------------------------------------------------------------------------
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 post-EPAct 2005, but these
commenters would require us to write into the statute words that are
not there.\50\
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\48\ EPAct 2005 Sec. 1262(5).
\49\ Id. Sec. 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).
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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\
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\51\ An 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.
---------------------------------------------------------------------------
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:
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\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).
---------------------------------------------------------------------------
(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
[[Page 1355]]
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.
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\53\ Similarly, although not raised by commenters, the blanket
authorization would apply to any organized Territory of the United
States.
---------------------------------------------------------------------------
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 non-governmental 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\
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\54\ While 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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\55\ We 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.
\56\ See, e.g., GE EFS and Independent Sellers.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\57\ 16 U.S.C. 796 (2000).
\58\ NOPR at P 38 (citing EPAct 2005 1291(b)(1)(B)(23)).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\59\ Id. at P 39 (citing EPAct 2005 1262(2), (8), & (9)).
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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.
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\60\ E.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).
---------------------------------------------------------------------------
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
[[Page 1356]]
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.
---------------------------------------------------------------------------
\61\ Industrial Consumers Comments at 6.
---------------------------------------------------------------------------
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).
---------------------------------------------------------------------------
\62\ APPA/NRECA Comments at 18.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\63\ We 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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\64\ EPAct 2005 1262(8).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\65\ 16 U.S.C. 824(f) (2000).
\66\ 7 U.S.C. 901 et seq.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\67\ NOPR at P 37.
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[[Page 1357]]
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.
---------------------------------------------------------------------------
\68\ 16 U.S.C. 824d (2000).
\69\ 16 U.S.C. 824e (2000).
---------------------------------------------------------------------------
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
[[Page 1358]]
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.
---------------------------------------------------------------------------
\70\ See, 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.'').
---------------------------------------------------------------------------
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 ``Non-Utility 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.
---------------------------------------------------------------------------
\71\ NOPR at P 44.
\72\ These are examples only. This list is not intended to be
exhaustive.
---------------------------------------------------------------------------
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 cross-subsidization 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.
---------------------------------------------------------------------------
\73\ E.g., APPA/NRECA, Indiana Commission, Kentucky Commission,
NARUC, NASUCA, and New Jersey Board of Public Utilities (New Jersey
Board).
---------------------------------------------------------------------------
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
cross-subsidization. AEP maintains that amended section 203(a)(4) is
simply designed to ensure that a transaction does not result in cross-
subsidization,
[[Page 1359]]
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).
---------------------------------------------------------------------------
\74\ 18 CFR part 358 (2005).
---------------------------------------------------------------------------
b. Commission Determination
91. We agree with the majority of the commenters that the NOPR's
proposed broader definition of the term ``non-utility associate
company'' is reasonable. Our goal in defining this term is to ensure
that public utilities with captive customers do not cross-subsidize
``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.
---------------------------------------------------------------------------
\75\ NOPR at P 42.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\76\ 18 CFR 358.3(d).
---------------------------------------------------------------------------
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 non-utility 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.
---------------------------------------------------------------------------
\77\ 18 CFR 33.1(b) (2005).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\78\ NOPR at P 30.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\79\ Id. at P 32.
---------------------------------------------------------------------------
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 non-affiliate transactions involving either non-
affiliated buyers or sellers of securities of similarly situated
utilities or assets.
---------------------------------------------------------------------------
\80\ Id. at P 33.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\81\ Chairman 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.
---------------------------------------------------------------------------
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
[[Page 1360]]
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 non-
jurisdictional 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).
---------------------------------------------------------------------------
\82\ Boston 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.
---------------------------------------------------------------------------
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).
---------------------------------------------------------------------------
\83\ E.g., Indiana Commission, Kentucky Commission, New Jersey
Board, International Transmission Company (International
Transmission), EPSA, Scottish Power, TAPSG, and UWUA.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\84\ E.g., EEI, Duke/Cinergy, TAPSO, Indiana Commission,
Kentucky Commission, Progress Energy, and Scottish Power.
---------------------------------------------------------------------------
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 non-affiliate 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.
---------------------------------------------------------------------------
\85\ E.g., EEI, Ameren, Progress Energy, Southern Companies, and
Duke/Cinergy.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\86\ NARUC, Missouri Commission, the Public Utilities Commission
of Ohio (Ohio Commission), APPA/NRECA, NASUCA, and Constellation
Energy Group Inc. (Constellation).
---------------------------------------------------------------------------
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 non-
[[Page 1361]]
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.
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\87\ E.g., EEI, First Energy, Ameren, Duke/Cinergy, Entergy,
International Transmission, EPSA, Independent Sellers, Scottish
Power, Morgan Stanley, Indiana Commission, and Missouri Commission.
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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.
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\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.
\89\ Accounting 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).
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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 non-affiliate 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.
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\90\ For 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.
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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 non-affiliates, 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
agreed-upon 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 non-utilities 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 non-
affiliates, 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
[[Page 1362]]
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 coal-fired 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 Edgar-type
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 non-affiliates, 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.
---------------------------------------------------------------------------
\91\ 18 CFR 1.36 (2005).
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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
agreed-on 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
[[Page 1363]]
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 non-affiliates,
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\
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\92\ Book cost, as used here, refers to original book cost.
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6. Compliance With Section 203
127. Given the increased significance of valuation of a transaction
under amended section 203, the Commission solicited comments on whether
our existing recordkeeping and reporting requirements, outside the
section 203 context, will allow us and the public to effectively
monitor jurisdictional entities' determinations of when a section 203
application is required. For example, the Commission asked ``do FERC
Form 1s or Order No. 652 \93\ market-based rate change in status
reports provide sufficient information to monitor compliance with
section 203?'' \94\
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\93\ Reporting Requirement for Changes in Status for Public
Utilities with Market-Based Rate Authority, Order No. 652, 70 FR
8,253 (Feb. 18, 2005), FERC Stats. & Regs. ] 31,175, order on reh'g,
111 FERC ] 61,413 (2005).
\94\ NOPR at P 35.
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a. Comments
128. Many commenters believe that the Commission's existing record-
keeping and reporting requirements will be enough.\95\ Some note that
parties often seek section 203 authorization out of an abundance of
caution, whenever there is a reasonable possibility that section 203
approval is legally required, in order to remove regulatory uncertainty
from a transaction, as an entire transaction can be placed at risk if
required regulatory approvals are not obtained.
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\95\ E.g., Kentucky Commission, NARUC, Oklahoma Commission,
Ameren, Constellation, EEI, FirstEnergy, Progress Energy, and
Southern Companies. Some commenters argue that the Commission's
existing record-keeping and reporting requirements, including the
information supplied under the FERC Form 1, Order No. 652, and
Change in Status reports, are more than adequate.
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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\
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\96\ NARUC Comments at 7-8.
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130. APPA/NRECA assert that the Commission's existing record-
keeping and reporting requirements do not provide sufficient
information on fair market value for the Commission to ensure that
companies are not improperly transacting without filing for approval.
They state that the Commission should update our reporting
requirements, including requiring applicants to adhere to GAAP
principles for valuation determinations and to justify exemption from
section 203 under both a cost and market value method of valuation. As
for reporting requirements that might enable the Commission and the
public to police compliance with section 203, APPA/NRECA suggest that
the Commission should consider requiring public utilities to file
annual reports of all transactions with a value exceeding, for example,
$5 million, to enable the Commission to enforce the $10 million
standard.
b. Commission Determination
131. Most commenters state that the Commission's existing record-
keeping and reporting requirements are adequate. We agree and we will
not adopt any additional compliance requirements at this time. We
intend to keep our regulations as straightforward as possible so as not
to increase regulatory burden on the industry while at the same time
adequately monitoring jurisdictional entities' determinations of when
section 203 applies to their transaction. The Commission agrees that
parties have often sought section 203 authorization out of an abundance
of caution because of a reasonable possibility that section 203
approval was legally required. In this way, parties have sought to
remove regulatory uncertainty from a transaction, as an entire
transaction can be placed at risk if required regulatory approvals are
not obtained. This incentive is even greater now that EPAct 2005 has
authorized civil penalties for violating statutory requirements.\97\
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\97\ See 16 U.S.C. 825o-1 (2000), as amended by EPAct 2005
1284(e).
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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
[[Page 1364]]
utility, or an electric utility company, with a value in excess of $10
million without Commission authorization.
a. Comments
134. Many commenters, including EEI, Duke/Cinergy, and Entergy,
request that the Commission clarify that it will continue to interpret
section 203 to not apply to cash management \98\ and other financing
arrangements routinely used in utility holding company systems. Thus,
they request that the Commission continue to distinguish between the
acquisition of voting securities and other instruments that confer
control, which is subject to review under section 203, and the
acquisition of loans and other financial instruments that do not confer
control. They state that the issuance of these should remain subject to
section 204 of the FPA \99\ and relevant state law, but should not
require section 203 approval. EEI, Duke/Cinergy, and Entergy also
explain that cash management rules are already in place to monitor any
potential cross-subsidization concerns for these types of financial
arrangements. Furthermore, they assert that requiring prior approval
under section 203 for cash management arrangements would impair the
ability of holding companies and their public utility subsidiaries to
manage their short-term financing needs efficiently. Applying section
203 to all intra-system financings would be contrary to Congress'
intent and would create significant burdens for the Commission and
utilities alike. Alternatively, should the Commission determine that
section 203 applies to cash management programs, they request that the
Commission allow companies to seek pre-approval (similar to the pre-
approval process and reporting requirements adopted for cash management
agreements) or blanket authorization.
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\98\ While there are several different types of cash management
programs, a cash management program generally involves pooling the
cash resources of several affiliated companies into a ``money
pool.'' Affiliates can then borrow against the funds in the pool,
often at below market rates. Additionally, the parent company is
often able to achieve a higher rate of return on its money pool
investments than any single affiliate could on its own. For a more
detailed discussion of cash management programs. See Regulation of
Cash Management Practices, Order No. 634, 68 FR 40,500 (July 8,
2003), III FERC Stats. & Regs. ] 31,145 (June 26, 2003), Order No.
634-A, 68 FR 61,993 (Oct. 31, 2003), FERC Stats. & Regs. ] 31,152
(Oct. 23, 2003) (Cash Management Rule).
\99\ 16 U.S.C. 824c (2000).
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135. MidAmerican Energy Holdings Company (MidAmerican) also urges
the Commission to grant a blanket authorization for intra-holding
company system financings, contributions, or equity infusions in excess
of $10 million undertaken by an upper tier company to fund a lower tier
holding company, intermediate holding company, or public utility
company within the same holding company system. It states that the
purpose of these financial transactions is to fund the capital and
operating requirements of the lower tier entities and, thus, that these
transactions do not raise any cross-subsidization issues. MidAmerican
explains that the utility company would still need to obtain Commission
authorization under section 204 for the issuance of its own securities.
136. Further, MidAmerican urges the Commission to grant another
blanket authorization for the infusion of capital by a passive investor
through the acquisition of holding company or public utility company
securities, including debt and equity securities, subject to an
aggregate limitation that the passive investor acquire less than ten
percent of voting equity securities. It explains that one of the main
objectives of repealing PUHCA 1935 was to encourage additional
investment in the energy infrastructure by non-traditional, or passive
investors (who make significant capital infusions in the utility
industry either as lenders or equity investors), because existing
investors are not providing sufficient money. There is no need for
passive investors to follow the traditional section 203 approval
process. It states that passive investments will not have any adverse
effects on competition, rates, or regulation, and will not result in
cross-subsidization. MidAmerican proposes that, to ensure that a
passive investor will not be able to exercise control through ownership
of a voting equity security, the passive investor be limited to an
ownership interest of less than ten percent of voting securities.
Further, MidAmerican states that when an investor acquires the debt or
equity securities of an entity that has a de minimis interest in an
electric utility company, we should grant the blanket authorization.
137. MidAmerican suggests that the Commission require those who
receive these types of blanket authorizations to report their
transactions within 45 days of the closing of the transactions.
138. Many commenters, including EPSA and Independent Sellers,
request that the Commission clarify that the term ``securities,'' as
used in amended section 203(a), means only ``voting securities,'' as
that term is defined in section 1262(17) of PUHCA 2005, and does not
apply, for example, to debt or other nonvoting securities.
Alternatively, if the Commission is unable or unwilling to so clarify,
the Commission should request a conforming amendment from Congress.
139. Transmission Agency of Northern California (TANC) urges the
Commission to modify its Cash Management Rule to apply to public
utility holding companies, which would add an additional layer of
protection to utilities and their customers.
b. Commission Determination
140. As noted above, amended section 203(a)(2) expands the
Commission's authority to include mergers, acquisitions, and purchases
of securities \100\ of over $10 million involving holding companies
within certain holding company systems. A major part of the
Commission's past practice in reviewing section 203 transactions has
been to determine whether a particular merger or acquisition results in
a single entity having control over transmission or generation
resources that would allow it exercise market power. This would also be
a concern under the new section 203(a)(2) provision.
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\100\ The term ``security'' is defined in FPA section 3(16) as
``any note, stock, treasury stock, bond, debenture, or other
evidence of indebtedness of a corporation * * *.''
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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.
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\101\ We note, however, that it is possible, in some
circumstances, for non-voting securities to convey sufficient
``veto'' rights over management actions as to convey ``control''
that triggers section 203. The Commission has addressed similar
issues for purposes of evaluating independence of entities that ask
for RTO status, and the SEC considered similar issues through its
``no action'' letter process in applying PUHCA 1935. We anticipate
that our treatment of such issues under amended section 203 will
generally be consistent with these precedents. If uncertainty exists
as to whether significant veto rights could convey control, entities
should seek a ruling from the Commission to determine whether
section 203 approval is required.
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[[Page 1365]]
i. Cash Management Programs and Intra-Holding Company Financing
Arrangements
142. As several commenters note, cash management programs, money
pools, and other intra-holding company financing arrangements are a
routine and important tool used by many large companies to lower the
cost of capital for their regulated subsidiaries and to improve the
rate of return the holding company and its subsidiaries can get on
their money.\102\ The Commission does not intend to make it more
difficult for companies to take advantage of these types of
transactions. Since the companies participating in a cash management-
type agreement are already affiliated, allowing the transfer of funds
between such companies does not generally present competitive problems.
Thus, we find that it is consistent with the public interest to grant a
blanket authorization to allow holding companies and their subsidiaries
to take part in intra-system cash management-type programs, subject to
the discussion below.
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\102\ See, e.g., EEI Comments at 27-31.
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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.
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\103\ See Cash Management Rule at P 29.
\104\ We also note that under our existing Cash Management Rule,
changes to existing or new cash management agreements (including
money pool arrangements and other internal corporate financing
arrangements) must be filed with the Commission.
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ii. Purchases of Non-Voting Securities by a Qualifying Holding Company
144. We agree with the majority of commenters that there is no need
for case-by-case examination of the purchase by a holding company of
non-voting securities of a public utility or of another holding company
under amended section 203. The purchase of such securities generally
does not convey control and hence does not grant the purchasing holding
company additional market power, harm competitive markets, or otherwise
disadvantage captive customers.\105\ This is consistent with the intent
of Congress that EPAct 2005 increase outside investment in the utility
sector while protecting customers.\106\ As MidAmerican notes, the
issuance of securities by a jurisdictional company is also governed by
section 204 of the FPA. Thus, for the purposes of amended section 203,
we find that it is consistent with the public interest to grant a
blanket authorization for the purchase by a holding company of any
amount of non-voting securities of a public utility or of another
holding company. We will grant this blanket authorization and will not
impose any type of filing requirement with respect to such
transactions.
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\105\ See Cash Management Rule at P 29 (discussing exception for
non-voting interests that convey significant veto rights).
\106\ See, e.g., Senate Floor Statement by Senators Domenici (R-
NM), H.R. 6, Energy Policy Act of 2005, 151 Cong. Rec. S9256 (July
28, 2005) (stating that ``this should bring much more capital
investment into the utility companies that make up this powerful
institution, this entity called the grid of the United States.'').
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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.
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\107\ Accordingly, the Commission directs that the purchaser of
such securities file with the Commission copies of SEC schedules
13D, 13G, and 13F. SEC schedule 13D is required to be filed by any
entity acquiring beneficial ownership of more than 5 percent of a
class of a company's securities. The schedule 13D filing requires,
among other things, a statement of the purpose(s) of the acquisition
of the securities of the issuer and a description of any plans or
proposals the reporting person may have that relate to or would
result in the acquisition of additional securities of the issuer;
any extraordinary corporate transactions, such as a merger,
reorganization or liquidation of the issuer or its affiliates; and
any changes in the board of directors or management of the issuer.
Schedule 13G is the same form, but is used when the person or entity
is making the purchase for investment only. Institutional investment
managers who exercise investment discretion over $100 million or
more must report their holdings on SEC schedule 13F. We note that
these schedules required for a grant of blanket authorization under
section 203(a)(2) should impose only a de minimis burden on the
holding company, since we are requiring merely the same information
that is filed with the SEC. Should the SEC change its reporting
requirements, this information must continue to be filed with the
Commission.
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8. Section 33.2(j)--General Information Requirements Regarding Cross-
Subsidization
146. In the NOPR, the Commission proposed that new section 33.2(j)
would implement section 203(a)(4) by requiring applicants to explain
how they are providing assurance that the proposed transaction will not
result in a cross-subsidization of a non-utility associate company or a
pledge or encumbrance of utility assets for the benefit of an associate
company. We proposed to require appropriate evidentiary support for
that explanation. We proposed that if no such assurance can be
provided, applicants must explain how such cross-subsidization, pledge,
or encumbrance will be consistent with the public interest.\108\ This
explanation would be Exhibit M to the applicant's section 203
application. The Commission sought comment on what evidence parties
should be required to submit to support any explanation offered under
this subsection.
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\108\ NOPR at P 45.
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147. The Commission noted that it has sought to guard against
potential
[[Page 1366]]
cross-subsidization and affiliate abuse when it reviews applications
for cost-based or market-based rate authority under section 205 of the
FPA \109\ or dispositions of jurisdictional facilities under section
203 involving public utilities (or their affiliates) with captive
customers.\110\ We also noted that the Commission has cash management
rules to monitor proprietary capital ratios and money lending or other
financial arrangements that can harm regulated companies.\111\ We
stated that our primary focus has been on preventing a transfer of
benefits from a traditional public utility's captive customers to
shareholders of the public utility's holding company due to an intra-
system transaction that involves power or energy, generation
facilities, or non-power goods and services. Thus, in light of the
Congress' clear directive in EPAct 2005 that the Commission make
findings regarding cross-subsidization and the pledge or encumbrance of
utility assets in a section 203 order, we sought comments on what
additional safeguards or conditions may need to be placed on section
203 transactions. Specifically, the Commission solicited comments on
the adequacy of its present policies preventing affiliate abuse and
cross-subsidization, and whether conditions such as those imposed by
state commissions may need to be imposed on section 203 transactions.
The Commission also sought comment on whether additional conditions
should be placed on section 203 approvals to ensure that there is no
pledge or encumbrance that harms utility customers.
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\109\ 16 U.S.C. 824d (2000).
\110\ See, e.g., Sierra Pacific, 95 FERC ] 61,193; Boston Edison
Co., 80 FERC ] 61,274 (1997).
\111\ NOPR at P 46.
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a. Comments
148. Many commenters generally support the Commission's proposal
but recommend additional conditions or safeguards. They agree that the
Commission should impose specific conditions or safeguards to protect
against unfair competitive practices, cross-subsidization, and
affiliate abuse.\112\ Some recommend that the Commission consider such
protections on a case-by-case basis in consultation with affected state
commissions. Proposed conditions include, for example: Utility company
subsidiaries shall not loan any funds (or advance any credit or
indemnity) to the holding company without appropriate regulatory
approvals; a utility shall not incur any additional indebtedness, issue
any additional securities, or pledge any assets to finance any part of
a merger of holding companies without prior regulatory approvals; all
debt at the holding company level shall be non-recourse to the utility;
and the Commission should develop a process for periodic audits of
inter-company transactions to be conducted in appropriate instances, as
well as procedures for compliance monitoring, investigation, and
complaints of cross-subsidization and affiliate abuse.
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\112\ E.g., NARUC, New Jersey Board, Ohio Commission, Oklahoma
Commission, Indiana Commission, APPA/NRECA, TANC, TAPSG, NASUCA, and
UWUA.
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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\
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\113\ New Jersey Board Comments at 6 (emphasis in original).
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151. To mitigate cross-subsidization risks to ratepayers, other
commenters propose structural conditions on mergers of entities that
include both public utility and non-utility businesses, as the facts
require. This could include the separation of public utility business
within companies that also engage in non-utility business and the
separation of a public utility's books and records from those of non-
utility affiliates.
152. Finally, Southern Companies request that when a public utility
predominately serves customers at retail but has some jurisdictional
facilities, the Commission accept as sufficient a showing that the
public utility applicant is subject to general supervision by a state
commission that has authority to review the transaction, and that such
state commission approval is predicated upon a finding that the
transaction will not impair the performance of public service
obligations or result in cross-subsidy burdening utility assets or
service.
153. Other commenters generally state that there is no need to
impose additional conditions or a new evidentiary requirement to ensure
that transactions are consistent with the public interest.\114\ They
assert that the Commission already has in ways to guard against cross-
subsidization or pledging or encumbering of utility assets, including:
(1) Cash management rules; (2) code of conduct restrictions; (3) prior
approval for certain power transactions; (4) access to, and auditing
of, books and records; (5) expanded jurisdiction under EPAct 2005 with
regard to books, accounts, and records; (6) standards of conduct; and
(7) the application of Edgar standards to ensure that the sale price is
not higher than would have been paid to a non-affiliate.
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\114\ E.g., Duke/Cinergy, Entergy, EEI, AEP, Ameren,
FirstEnergy, Progress Energy, International Transmission, National
Grid, and Scottish Power.
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154. Duke/Cinergy, EEI, PNM, and Entergy assert that the Commission
should allow applicants to avoid a detailed examination of cross-
subsidization and encumbrance concerns by making four verifications on
a case-by-case basis that address those issues. These verifications
would enable the Commission to quickly determine whether a transaction
is consistent with the public interest. The verifications would be that
the transaction results in: (1) No transfers of facilities between a
traditional utility associate company with wholesale or retail
customers served under cost-based rates and an associate company; (2)
no new issuance of securities by traditional utility associate
companies with wholesale or retail customers served under cost-based
rates for the benefit of an associate company; (3) no new pledge or
encumbrance of assets of a traditional utility associate company with
wholesale or retail customers served under cost-based regulation for
the benefit of an associate company; (4) no new affiliate contracts
between non-utility associate companies and traditional utility
associate companies with wholesale or retail customers served under
cost-based rates, other than system allocation agreements subject to
review under EPAct 2005 section 1275(b).\115\ In cases where an
applicant is unable to make one or more of the accepted verifications,
these commenters state that the applicant should bear the burden of
submitting sufficient information in Exhibit M to demonstrate that
there is no cross-subsidization issue or, if there is, that the
transaction is consistent with the public interest.
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\115\ See, e.g., EEI Comments at 20-21; Entergy Comments at 8;
Duke/Cinergy Comments at 7.
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[[Page 1367]]
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\
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\116\ E.g., Duke/Cinergy, EEI, Entergy, AEP, Ameren, Progress
Energy, PNM, FirstEnergy, International Transmission, National Grid,
and Scottish Power (citing NOPR at P 52.).
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156. Oklahoma Commission suggests that the Commission allow state
commissions to continue to exercise their autonomous authority in
addressing possible affiliate abuse and cross-subsidization. Kentucky
Commission states that any additional conditions imposed by the
Commission should complement, not nullify or preempt, those imposed by
state commissions.
157. International Transmission states that because independent
transmission companies, by definition, are not affiliated with market
participants, concerns regarding transmission-specific cross-
subsidization that distort energy markets are minimized. National Grid
states that the Commission should impose a merger condition only when
it finds a proposed transaction, taken as a whole, is inconsistent with
the public interest. Scottish Power states that the Commission should
allow applicants to provide their own ways to demonstrate that there is
no potential for cross-subsidization, on a case-by-case basis.
158. FirstEnergy contends that a requirement that applications
demonstrate that each company within a holding company system is
unaffected by cross-subsidization would inundate the Commission with
information that has no real import. If the Commission requires such an
evidentiary showing, it must clearly define the types of evidentiary
support that would be necessary and provide guidance on the types of
activities that typically would result in a pledge or encumbrance and
those that will be consistent with the public interest. FirstEnergy
states that conditions should be placed on section 203 approvals only
when the Commission finds that a pledge or encumbrance is not
consistent with the public interest.
159. Finally, Independent Sellers request that the Commission adopt
a rebuttable presumption that no opportunity for cross-subsidization
exists when a transaction involves only entities that are not
affiliated with traditional public utilities with captive ratepayers.
160. In addition, Kentucky Commission, APPA/NRECA, and TAPSG
comment that the Commission should require as part of a section 203
application the disclosure of all existing and/or future pledges and
future encumbrances of utility assets. They state that applicants
should have to explain how these existing pledges or encumbrances do
not harm utility customers. However, International Transmission and
FirstEnergy do not believe that all existing pledges and encumbrances
should be disclosed in section 203 applications because this would be
inconsistent with section 33.11(b)(3) of the regulations, which assumes
that corporate reorganizations can occur that do not present cross-
subsidization issues.
161. Missouri Commission states that the Commission should require,
as a condition of approving mergers, the application of a ``lower of''
or ``higher of'' ``cost or market value'' standard. TANC states that
requiring associate and affiliated companies to file cost allocation
agreements with the Commission will help prevent excessive costs for
non-power goods and services from being charged to utility companies
and their customers. With regard to cost allocations for non-power
goods and services, TANC asserts that the dual approach of a ``lower of
cost or market'' standard has the advantage of ensuring that utilities
and customers will not be harmed by an affiliate company relationship,
regardless of whether market price exceeds costs for the non-power
goods or services, or vice versa.
162. AEP encourages the Commission to retain the ``at cost''
standard for intra-system non-power goods and services transactions due
to the added cost, burden, and inconsistencies that would be created
otherwise. It explains that the expense and effort of implementing a
``lower of cost or market'' standard to the wide range of routine
service company administrative and professional services would be
immense, would result in lost efficiencies and, ultimately, would
produce higher rates for regulated ratepayers. AEP states that the at-
cost standard is a fair, verifiable, and workable.\117\
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\117\ AEP Comments at 6-7.
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163. National Grid states that the Commission should continue to
allow the use of the SEC's ``at no more than cost'' standard for
pricing of intra-company transactions involving service companies. It
explains that such companies were created to allow efficiently
centralized support services for utility and non-utility associate
companies within a holding company; therefore, a pricing system based
on market prices would not be appropriate.
b. Commission Determination
164. The Commission will adopt, with the modification explained
below, our proposal to require section 203 applicants to include an
explanation of either: (1) How they are providing assurances that the
proposed transaction will not result in cross-subsidization or improper
pledges or encumbrances of utility assets; or (2) if such results would
occur, how those results are consistent with the public interest. We
believe that this approach meets Congress' concern regarding cross-
subsidization in section 203 transactions. As we explained in the NOPR,
the Commission has previously adopted a number of policies to address
affiliate abuse and cross-subsidization activities as it carries out
its section 203 and 205 responsibilities. Amended section 203, however,
clearly shows that Congress intended that cross-subsidization and
related concerns should be a focal point of the Commission's section
203 analysis.
165. We also agree with commenters that certain protections may be
necessary, on a case-by-case basis, in order to protect against cross-
subsidization, pledge or encumbrance of utility assets, and affiliate
abuse. We note that commenters who generally support the Commission's
proposal, as well as some who generally do not support the proposal,
advocate a case-by-case approach. Commenters suggest many valid
conditions that applicants might propose or that the Commission might
impose under revised FPA section 203(a)(4). However, many of these
conditions may not be appropriate to every section 203 transaction.
166. In our Merger Policy Statement, the Commission explained that,
in determining whether a merger is consistent with the public interest,
one of the factors we consider is the effect the proposed merger will
have on rates. The Commission's main objective in applying this factor
is to protect captive customers who are served under cost-based rates
that could be adversely affected by a section 203 transaction.\118\
[[Page 1368]]
The new provision in amended section 203(a)(4) concerning cross-
subsidization is rooted in similar concerns. In our Merger Policy
Statement, we held that an applicant that wishes to avoid a hearing on
rate issues should submit a commitment that adequately protects captive
customers, such as a hold harmless commitment or an open season. Also,
as part of our policy authorizing market-based rates for traditional
public utilities or their affiliates, we have required that these
utilities adopt a code of conduct that addresses both power and non-
power transactions between them.\119\ We believe that these types of
commitments also can, in appropriate circumstances, address concerns
regarding the potential that a merger may permit cross-subsidization.
We will therefore require applicants to offer protections to their
captive customers that address the potential for cross-subsidization.
We also note that, in addition to any such commitments, we have
continuing jurisdiction over the rates of public utilities under
section 205 by which to further protect captive customers.
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\118\ Customers charged under market-based rates escape the
potentially deleterious effects of cross-subsidization, or pledge or
encumbrance of utility assets, because the prices are constrained by
competition, regardless of the seller's costs. In contrast, captive
customers (who pay cost-based rates) require protection. See, e.g.,
Alpena Power Generation, L.L.C., 110 FERC ] 61,199, at P 17 (2005)
(finding affiliate abuse concerns were addressed with respect to
market-based rate authority because, among other factors, there were
no captive customers); Pinnacle West Capital Corp., 95 FERC ]
61,300, at 62,024 (2001) (``The focus of the Commission's affiliate
abuse concerns in cases involving sales between affiliates at
market-based rates thus is protection of captive customers.'');
Connectiv Energy Supply, Inc., 91 FERC ] 61,076, at 61,268 (2000)
(``As the Commission has explained in previous cases, there is a
concern whenever a public utility can transact with an affiliated
power marketer in such a way as to transfer benefits from a power
sale from captive ratepayers to its shareholders.''); The Detroit
Edison Co., 84 FERC ] 61,197 (1998) (the Commission places no
restrictions on power marketer transactions with affiliates that do
not have captive customers).
\119\ NOPR at P 48 and 49.
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167. In sum, the concern about cross-subsidization is principally a
concern over the effect of a transaction on rates. Accordingly,
applicants proposing transactions under section 203 should proffer
ratepayer protection mechanisms to assure that captive customers are
protected from the effects of cross-subsidization. The applicant bears
the burden of proof to demonstrate that customers will be
protected.\120\ Applicants should attempt to resolve the matter with
customers before filing. Among the types of protection mechanisms that
could be proposed by applicants are: A general hold harmless provision,
which must be enforceable and administratively manageable, where the
applicant commits that it will protect wholesale customers from any
adverse rate effects resulting from the transaction for a significant
period of time following the transaction; or a moratorium on increases
in base rates (rate freeze), where the applicant commits to freezing
its rates for wholesale customers under a certain tariff for a
significant period of time.\121\ The Commission will address the
adequacy of the proposed mechanisms on a case-by-case basis.
Furthermore, we agree that any additional conditions imposed by the
Commission would complement, not nullify, those imposed by state
commissions.
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\120\ See Central Vermont Pub. Serv. Corp., 39 FERC ] 61,295, at
61,960 (1987) (stating that in cases where the Commission finds
sufficient potential for abuse, the Commission may disapprove the
transaction or place appropriate conditions on it).
\121\ These protection mechanisms are offered only as examples.
Whether these types of protection mechanisms are appropriate in a
particular case will depend on the circumstances and the details of
the transaction in question. See, e.g., Merger Policy Statement at
30,121-24.
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168. What constitutes adequate ratepayer protection will depend on
the particular circumstances of the transaction. Should parties be
unable to reach an agreement on ratepayer protection, the Commission
may still be able to approve the transaction on the basis of the
parties' filings if we determine that the proposal protects ratepayers
from harm, or after imposing conditions specific to the particular
circumstances.
169. We also agree with commenters that certain verifications in an
application under amended section 203 could streamline the approval
process by avoiding a detailed examination of cross-subsidization and
encumbrance concerns. Such verifications, considered on a case-by-case
basis in light of the given transaction, and explanations relating to
those verifications, as well as other explanations of how the
transaction will not result in cross-subsidization, pledge, or
encumbrance of utility assets for the benefit of an associate company
`` or if it does result in such, an explanation of how such cross-
subsidization, pledge, or encumbrance will be consistent with the
public interest `` is to be included as Exhibit M to the application.
Accordingly, along with any protection mechanisms as discussed above,
we may accept on a case-by-case basis, in lieu of or in addition to any
other explanation, the following four verifications. The application
may verify that the proposed transaction does not result in, at the
time of the transaction or in the future: (1) Transfers of facilities
between a traditional utility associate company with wholesale or
retail customers served under cost-based regulation and an associate
company; (2) new issuances of securities by traditional utility
associate companies with wholesale or retail customers served under
cost-based regulation for the benefit of an associate company; (3) new
pledges or encumbrances of assets of a traditional utility associate
company with wholesale or retail customers served under cost-based
regulation for the benefit of an associate company; (4) new affiliate
contracts between non-utility associate companies and traditional
utility associate companies with wholesale or retail customers served
under cost-based regulation, other than non-power goods and services
agreements subject to review under sections 205 and 206 of the FPA.
170. We also agree with New Jersey Board that proposed section
33.2(j) does not clearly require appropriate evidentiary support for
the explanation in Exhibit M. We will therefore revise the text to
read: ``An explanation, with appropriate evidentiary support for such
explanation (to be identified as Exhibit M to this application): * *
*'' Further, the Commission will monitor and periodically audit, where
appropriate, to ensure that applicants abide by their commitments in
Exhibit M and any requirements contained in Commission orders.
171. With regard to comments on the ``at cost'' standard versus the
``market'' standard for transactions involving non-power goods and
services, we note that the Commission addressed this issue in the PUHCA
2005 rulemaking.\122\
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\122\ PUHCA 2005 Final Rule at P 166-73.
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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
[[Page 1369]]
order tolling the time for acting on the application for not more than
180 days, at the end of which additional period the Commission shall
grant or deny the application, as required by amended section 203 of
the FPA.\124\
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\123\ As explained in the Merger Policy Statement, a complete
application is one that describes the merger being proposed and that
contains all the information necessary to explain how the merger is
consistent with the public interest, including an evaluation of the
merger's effect on competition, rates, and regulation. Merger Policy
Statement at 30,127. The Commission's review process will begin when
the application is deemed to be complete.
\124\ NOPR at P 56.
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173. Proposed subsection 33.11(b) would provide for the expeditious
consideration of completed section 203 applications that are not
contested, are not mergers, and are consistent with Commission
precedent, because they should typically meet the standards established
in section 203(a)(4).\125\
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\125\ Id. at P 57.
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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\
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\126\ NOPR at P 59. The Commission noted that PUHCA 1935
exempted from its requirements certain acquisitions of foreign
utility companies by a holding company with operations in the United
States. 15 U.S.C. 33 (2000); 17 CFR 250.57 (2005). However, amended
section 203 appears to provide no such exemption.
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175. With respect to the latter category, the Commission recognized
that amended section 203's requirement for regulatory approval could
have a chilling effect on investment--particularly if the transaction
were subjected to a lengthy regulatory review. The Commission noted
that such a transaction would not cause competitive concerns in the
United States and, further, that there would be no concerns about
cross-subsidization that harms captive customers in the United States.
In addition, the Commission stated that even with respect to the
acquisition of a foreign utility company by a holding company with
captive customers in the United States, there may be safeguards that
allow expedited approval of such transactions. Thus, the Commission
sought comment on procedures the Commission might adopt, or safeguards
it might require, to pre-approve or expedite such transactions while at
the same time protecting U.S. captive customers.
176. Further, the Commission stated that it expects to have a 60-
day notice period for section 203 applications that involve, contain,
or require a competitive analysis per the part 33 and a 21-day notice
period for all other section 203 applications, except for certain
applications that may raise cross-subsidization concerns. The
Commission stated that it expects to have a 60-day notice period for
applications that seek authorization to transfer ownership of a
generation plant from one affiliate or associate company to another
company within the same corporate structure and for other applications
that may raise cross-subsidization or pledge or encumbrance
issues.\127\
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\127\ NOPR at P 64-64. The Commission explained that not
included in this category are transactions that merely change
upstream ownership interests held by parent companies of public
utilities or transactions that do not alter the terms of power
supply or power supply costs for captive customers.
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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\
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\128\ See EEI Comments at 22-23. For example, one verification
that EEI proposes is that the proposed transaction results in no
transfers of facilities between a traditional utility associate
company with wholesale or retail customers served under cost-based
regulation and an associate company. Thus, a transaction that
results in a transfer of facilities into or out of a traditional
utility with captive customers could not qualify for automatic
approval.
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179. With respect to proposed section 33.11(b)(4), commenters had a
variety of responses on the procedures that the Commission might adopt,
or safeguards it might require, to expedite or pre-approve transactions
involving the acquisition of a FUCO by a holding company with no
captive customers in the U.S. Many commenters request that the
Commission not adopt any rules or policies that would impose undue
regulatory burdens on holding companies that seek to invest in foreign
utility companies.
180. Many traditional public utility commenters and others
generally support a 30-day expedited review or pre-approval for
transactions involving acquisitions of FUCOs.\129\ Commenters suggest
that the Commission automatically approve the application when the
applicant provides certain cross-subsidization verifications (similar
to those listed in EEI's comments), as well as assurances that the
transaction will have no adverse effect on competition, rates, and
regulation, if the filing is verified by a duly authorized corporate
official of the holding company.\130\ The transaction should be deemed
approved upon making such informational filing.
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\129\ E.g., EEI, Duke/Cinergy, Entergy, AEP, Progress Energy,
Ameren, AES, EPSA, Scottish Power, and E.ON.
\130\ E.g., EEI Comments at 22-23, 25-26; National Grid Comments
at 20-22; AES Comments at 15-19; EPSA Comments at 8-9.
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181. State commission commenters, including NARUC, Ohio Commission,
and New Jersey Board, generally suggest that, in order to protect
domestic customers while expediting or pre-approving foreign utility
transactions, the Commission should consider reviewing the financial
condition and credit ratings of the acquiring utility holding company
and its operating utility companies, or require applicants to submit
service agreements, codes of
[[Page 1370]]
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.
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\131\ See, e.g., NARUC Comments at 15-16; Ohio Commission
Comments at 8-9; New Jersey Board Comments at 9-10.
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182. Some commenters are cautious of the Commission's proposed
expedited procedures for approving the acquisition of FUCOs. TAPSG
states that the Commission should not decide in the abstract how
reviews of such transactions can be expedited. Public Citizen urges the
Commission to protect domestic ratepayers by requiring that a strong
showing be made that such a transaction is consistent with the public
interest and by evaluating whether attempts by off-shore companies to
acquire or hold controlling shares in U.S. public utilities can be
found to be consistent with the public interest.
183. With respect to proposed section 33.11(b)(1) and expedited
procedures for a disposition of transmission facilities only
(particularly those that both before and after the transaction remain
under the functional control of a Commission-approved RTO or ISO), TANC
comments that expedited review should be used only where the facilities
will remain under the functional control of the same Commission-
approved RTO or ISO after the transaction is completed. TANC also
states that transmission-only dispositions should receive expedited
review only when they involve entities that are non-dominant market
participants. APPA/NRECA argues that dispositions of transmission-only
facilities should not generally receive expedited review.
184. With respect to proposed section 33.11(b)(2) and expedited
procedures for transfers involving generation facilities of a size that
do not require an Appendix A analysis, many traditional public utility
commenters suggest that such expedited review be extended to include
all transactions that do not require an Appendix A analysis. They
recommend revising the proposed regulations to state: ``transactions
that do not require an Appendix A analysis.'' \132\ They also state
that, even in cases where an Appendix A analysis is required for a
generation facility acquisition, the Commission should act
expeditiously in certain circumstances, setting a 30-day comment period
and issuing an order no later than 30 days thereafter. Southern
Companies requests that the Commission provide guidance regarding when
an Appendix A analysis is required.
---------------------------------------------------------------------------
\132\ See, e.g., EEI Comments at 24-26; Duke/Cinergy Comments at
10-11; Entergy Comments at 9-11.
---------------------------------------------------------------------------
185. With regard to proposed section 33.11(b)(3), EEI, Entergy, and
Duke/Cinergy support expedited procedures or pre-approval for internal
corporate reorganizations that do not present cross-subsidization
issues. National Grid, however, requests expedited procedures or pre-
approval for internal reorganizations that do involve mergers.\133\ It
requests that the Commission facilitate all internal corporate
reorganizations that do not either introduce new third-party interests
or cross-subsidization issues, which are routine aspects of a company's
financial operations, and do not need to be disrupted by formal
proceedings, however expedited, under section 203.
---------------------------------------------------------------------------
\133\ National Grid Comments at 33.
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186. EEI, Entergy, and Duke/Cinergy, state that the Commission
could streamline the process further by granting blanket
authorizations, for FUCO acquisitions involving holding companies that
do not have captive customers in the U.S. and for internal corporate
reorganizations involving public utility and holding company systems
that do not involve traditional utility companies with captive
customers.\134\
---------------------------------------------------------------------------
\134\ See, e.g., EEI Comments at 26-27.
---------------------------------------------------------------------------
187. Several commenters also made suggestions regarding notice
periods and complete applications. Many commenters support the
Commission's expected notice periods. However, some commenters
recommend that, except in simple cases, the Commission provide for a
60-day notice period. They suggest that the applicant bear the burden
of demonstrating that a shorter notice period is appropriate. TAPSG and
UWUA recommend that, where applications are not complete, the
Commission should issue deficiency letters. TAPSG also suggests that
the Commission not deem an application complete until after it has
reviewed any interventions or protests, since they may identify
deficiencies in the application. UWUA recommends that the 180-day clock
on section 203 applications should not begin to run until a complete
application has been submitted. It states that merger applicants should
have an increased responsibility to submit complete applications that
are supported with full explanations of the details of the proposed
transaction, including testimony.
b. Commission Determination
188. The Commission adopts the proposed criteria for expedited
consideration in section 33.11(b). Expedited consideration will be
available for applications that are not contested, are not mergers, and
are consistent with Commission precedent. With respect to APPA/NRECA
and TANC's concerns that the Commission should review even uncontested
section 203 applications to ensure that they are consistent with
Commission precedent, we note that the Commission has always reviewed
section 203 applications, regardless of whether they are contested.
189. Further, while some commenters recommend that the regulations
contain an exhaustive list of the types of transactions that would
generally warrant expedited review, we continue to believe that doing
so could exclude transactions that may warrant expedited review, but
that are not listed. Thus, as discussed below, we will not adopt an
exhaustive list of such transactions. The Commission will not expressly
provide expedited review for mergers or acquisitions involving
independent transmission companies, as suggested by International
Transmission, as review of such cases would be more appropriately
addressed on an individual basis.\135\
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\135\ We note that although the Filing Requirements Rule
provided that applicants for a transaction involving only
transmission facilities need not provide a competitive analysis
under Sec. Sec. 33.3 or 33.4 of the Commission's regulations, it
also states that if the Commission determines that a filing
nonetheless raises competitive issues, the Commission will evaluate
those issues. Filing Requirements Rule at 31,902.
---------------------------------------------------------------------------
190. Commenters have raised many valid arguments regarding the
Commission's four proposed categories of transactions generally
warranting expedited review. We will adopt the NOPR's proposal in
section 33.11(b)(1) and will generally provide expedited review for a
disposition of only transmission facilities, particularly those that
both before and after the transaction remain under the functional
control of a Commission-approved RTO or ISO. We note APPA/NRECA's
concern that the consolidation of control of jurisdictional facilities
should be carefully evaluated under section 203 and TANC's argument
that expedited review should be limited to those facilities that will
remain under the functional control of the same Commission-approved RTO
or ISO after the transaction is completed. However,
[[Page 1371]]
we believe that ISOs and RTOs are pro-competitive and are effective at
preventing market power abuse because they have Commission-approved
market-monitoring and mitigation measures in place. Further, we
continue to believe that, as stated in the Filing Requirements Rule,
``the standards set forth in Order No. 2000 \136\ require extensive
information from RTO applicants that we believe will demonstrate
whether the proposal is in the public interest. It also has been our
experience that anticompetitive effects are unlikely to arise with
regard to internal corporate reorganizations or transactions that only
involve the disposition of transmission facilities.'' \137\ For these
reasons, we adopt section 33.11(b)(1) as proposed in the NOPR.
---------------------------------------------------------------------------
\136\ Regional Transmission Organizations, Order No. 2000, 65 FR
809 (Jan. 6, 2000), FERC Stats. & Regs. ] 31,089, at 31,108 (1999),
order on reh'g, Order No. 2000-A, 65 FR 12,088 (Mar. 8, 2000), FERC
Stats. & Regs. ] 31,092 (2000), aff'd sub nom. Public Utility
District No. 1 of Snohomish County, Washington v. FERC, 272 F.3d 607
(DC Cir. 2001).
\137\ Filing Requirements Rule at 31,902.
---------------------------------------------------------------------------
191. With respect to proposed section 33.11(b)(2), the Commission
will adopt commenters' proposal and expand that section to generally
provide expedited review for ``transactions that do not require an
Appendix A analysis.'' On further consideration, the Commission finds
that it is not necessary to limit the transactions that will receive
expedited review based on the amount of generation that is being
transferred in the transaction. First, we note that the amount as well
as the type of generation involved can have different market power
consequences, depending on the situation, in different markets. Second,
our current regulations, which allow applicants to file an abbreviated
competitive analysis (e.g., an analysis that does not include an
Appendix A analysis) in certain circumstances, permit us to seek
additional information if it is needed to allow us to evaluate the
effects of the transaction. Therefore, although in the first instance
the applicant must decide whether to perform a full-fledged analysis,
it is the Commission that ultimately decides whether such analysis is
necessary and thus whether the filing qualifies for expedited review.
192. With respect to proposed section 33.11(b)(3), we agree with
commenters that internal corporate reorganizations that do not present
cross-subsidization issues are unlikely to cause anticompetitive
effects. Thus, instead of providing expedited review for this category,
the Commission is granting a blanket authorization for internal
corporate reorganizations that do not present cross-subsidization
issues and that do not involve a traditional public utility with
captive customers.
193. With respect to the last category, proposed section
33.11(b)(4), we will not adopt the NOPR's proposal to expedite review
for transactions involving the acquisition of a FUCO by a holding
company with no captive customers in the U.S. Instead, we will grant a
blanket authorization for any holding company in a holding company
system that includes a transmitting utility or an electric utility
company to acquire a foreign utility company. However, if such holding
company or any of its affiliates, its subsidiaries, or associate
companies within the holding company system have captive customers in
the United States, the authorization is conditioned on the holding
company verifying by a duly authorized corporate official of the
holding company that the proposed transaction will not have any adverse
effect on competition, rates, or regulation, and will not result in, at
the time of the transaction or in the future: (1) Any transfer of
facilities between a traditional utility associate company with
wholesale or retail customers served under cost-based regulation and an
associate company; (2) any new issuance of securities by traditional
utility associate companies with wholesale or retail customers served
under cost-based regulation for the benefit of an associate company;
(3) any new pledge or encumbrance of assets of a traditional utility
associate company with wholesale or retail customers served under cost-
based regulation for the benefit of an associate company; or (4) any
new affiliate contracts between non-utility associate companies and
traditional utility associate companies with wholesale or retail
customers served under cost-based regulation, other than non-power
goods and services agreements subject to review under sections 205 and
206 of the FPA. Such transactions will be deemed approved only upon
making a filing of these verifications.
194. Regarding notice periods, the Final Rule adopts the NOPR
approach. Some commenters recommend that the Commission's default rule
for all section 203 applications should be to provide the public 60
days to submit comments, and that the applicants should bear the burden
or demonstrating that a shorter notice is appropriate. However, the
Commission finds that the NOPR notice periods will allow us to continue
processing section 203 applications quickly to allow reasonable
business goals to be met. Accordingly, we expect to have a 60-day
notice period for section 203 applications that involve, contain, or
require a competitive analysis per the revised filing requirements, and
a 21-day notice period for all other section 203 applications, except
those that may raise cross-subsidization concerns. We will not
formalize this policy by rule, so that we can be flexible to deal with
varying circumstances. This will allow us to protect against some
commenters' concerns that the public notice period would be
``unnecessarily short-circuited,'' and ensure that it will only be
streamlined as appropriate.
B. Amendments to 18 CFR 2.26--The Merger Policy Statement
195. When the Commission considers a proposed transaction's effect
on federal regulation, section 2.26(e)(1) states that ``[w]here the
merged entity would be part of a registered public utility holding
company, if applicants do not commit in their application to abide by
this Commission's policies with regard to affiliate transactions, the
Commission will set the issue for a trial-type hearing.''
196. However, in the NOPR, the Commission explained that because
EPAct 2005 repeals PUHCA 1935,\138\ activities of registered holding
companies that were previously subject to SEC regulation, including
inter-company transactions, will no longer be exempt from this
Commission's regulation once PUHCA 1935 repeal takes effect on February
8, 2006.\139\ Thus, the Commission stated that there is no longer a
concern about any potential shift in regulation from this Commission to
the SEC under the effect of regulation factor, and proposed to delete
section 2.26(e)(1).\140\
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\138\ EPAct 2005 Sec. 1263.
\139\ See 17 CFR part 250 (2005).
\140\ NOPR at P 67. However, the Commission reiterated that
applicants are still required to address whether the transaction
will have any other effect on the Commission's regulation.
---------------------------------------------------------------------------
197. Proposed new subsection 2.26(f) would state that the
Commission will not approve a transaction that will result in cross-
subsidization of a non-utility associate company or pledge or
encumbrance of utility assets for the benefit of an associate company
unless that cross-subsidization, pledge, or encumbrance will be
consistent with the public interest.
1. Comments
198. Commenters did not specifically address the Commission's
proposed section 2.26(e) and (f) amendments. However, some recommend
that the Commission rethink its current merger policy and make
important decisions as
[[Page 1372]]
to what ``consistent with the public interest'' means in light of
amended section 203 and the repeal of PUHCA 1935. Some comment that the
Commission should broaden its public interest inquiry to consider
ratepayer benefits on an application-specific basis; namely, applicants
could propose an open season guarantee under which their existing
wholesale requirements customers could terminate their contracts if the
applicants request a rate increase affecting those customers for the
first five years after the merger is consummated.
199. Ohio Commission comments that the Commission should consider
factors in addition to those listed in section 2.26(b). It recommends
that the Commission require that a holding company secure a letter of
endorsement, or order, from any affected state regulatory commission in
which the holding company has utility operations. It states that a
similar endorsement requirement is used by the SEC to implement Rule 53
\141\ regarding authority for registered holding company financings in
connection with the acquisition of exempt wholesale generators.
---------------------------------------------------------------------------
\141\ 17 CFR 250.53 (2005).
---------------------------------------------------------------------------
200. Commenters also explain that, in light of amended section 203,
the Commission should expect numerous section 203 applications seeking
approval of ``cross-country'' (or interstate) mergers. They state that
the Commission's current method for evaluating the effect of a proposed
electric utility merger on competition, the Appendix A analysis, was
developed when cross-country electric utility mergers were not common,
because of PUHCA 1935. The ``impact on competition'' horizontal screen
analysis looks primarily at whether competition will be lessened in the
``common'' markets where the merger applicants operate. They state that
continued use of the Appendix A analysis alone may result in
substantial industry consolidation.
201. TAPSG asserts that the Commission almost exclusively relies on
the HHI aspect of the Appendix A analysis and fails to examine the
other competitive effects of a transaction. It comments that the
Commission should require applicants to submit documents and data,
beyond those needed to perform the Appendix A analysis, including the
kinds of information submitted to the antitrust agencies as part of the
initial Hart-Scott-Rodino \142\ notification, and should require
applicants to submit supply curve analyses for each relevant market.
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\142\ TAPSG explains that the Hart-Scott-Rodino notification is
a far more limited submission required of all utilities subject to
the Hart-Scott-Rodino filing requirements and described in 16 CFR
part 803 (2005).
---------------------------------------------------------------------------
2. Commission Determination
202. With respect to commenters' specific concerns regarding the
Commission's merger policy, we are not persuaded at this time to change
our current policies. Our standard of review is flexible enough to
consider any changes in market structure that ultimately result from
the EPAct 2005 and the repeal of PUHCA 1935. However, once the
Commission has gained more experience in evaluating section 203
applications under the new statute, we may consider reevaluating our
merger policy in general. Accordingly, we adopt the proposal set forth
in the NOPR with respect to amended sections 2.26(e) and (f).
IV. Information Collection Statement
203. Office of Management and Budget (OMB) regulations require that
OMB approve certain reporting and recordkeeping requirements
(collections of information) imposed by an agency.\143\ The information
collection requirements in this Final Rule are identified under the
Commission's data collection, FERC-519, ``Applications Under Federal
Power Act Section 203.'' Under section 3507(d) of the Paperwork
Reduction Act of 1995,\144\ the reporting requirements in this
rulemaking will be submitted to OMB for review.
---------------------------------------------------------------------------
\143\ 5 CFR 1320.11 (2005).
\144\ 44 U.S.C. 3507(d) (2000).
---------------------------------------------------------------------------
204. Respondents subject to the filing requirements of this Final
Rule will not be penalized for failing to respond to this collection of
information unless the collection of information displays a valid OMB
control number. ``Display'' is defined as publishing the OMB control
number in regulations, guidelines, forms or other issuances in the
Federal Register (for example, in the preamble or regulatory text for
the Final Rule containing the information collection).\145\
---------------------------------------------------------------------------
\145\ See 1 CFR 21.35; 5 CFR 1320.3(f)(3).
---------------------------------------------------------------------------
Public Reporting Burden: In the NOPR, the Commission stated that
the regulations that it proposed should have a minimal impact on the
current reporting burden associated with an individual application, as
they would not substantially change the filing requirements with which
section 203 applicants must currently comply. Further, the Commission
stated that it did not expect the total number of section 203
applications to increase substantially under amended section 203. The
Commission received 42 comments on its NOPR and only GE EFS
specifically addressed its estimates. GE EFS notes that the
``Information Collection Statement'' in the NOPR states that ``the
Commission does not expect the total number of section 203 applications
under amended section 203 to increase substantially.'' \146\ GE EFS
comments that, unless the Commission limits the overly broad scope of
its proposed rules, the Commission will be burdened with applications
for acquisitions of securities of QFs, which heretofore were exempted
from section 203.\147\ As noted above, we believe that the blanket
authorizations granted herein for certain holding company acquisitions
of non-voting securities and up to 9.9 percent of voting securities in
electric utility companies will adequately address GE EFS' concerns. To
the extent additional blanket authorizations are needed or appropriate,
we will consider those on a case-by-case basis. Thus, we believe that
we have lessened the burden on applicants subject to the requirements
of amended section 203, including for applicants seeking to acquire
securities of QFs. Therefore, the Commission will retain its initial
estimates.
---------------------------------------------------------------------------
\146\ NOPR at P 70.
\147\ GE EFS Comments at 2.
---------------------------------------------------------------------------
The Commission is submitting a copy of this Final Rule to OMB for
review and approval. In their notice of December 9, 2005, OMB took no
action on the NOPR, instead deferring their approval until review of
the Final Rule.
Title: FERC-519, Applications Under Federal Power Act Section 203.
Action: Proposed Information Collection.
OMB Control No: 1902-0082.
Respondents: Businesses or other for profit.
Necessity of the Information: The information collected under the
requirements of FERC-519 is used by the Commission to implement section
203 of the Federal Power Act and the Code of Federal Regulations under
18 CFR part 33 and 18 CFR 2.26. This Final Rule is limited to
implementing amended section 203 of the FPA, which directs the
Commission to adopt a rule to do so. Further, this Final Rule does not
substantially change the current filing requirements or regulations
that applicants must comply with for transactions subject to FPA
section 203.
205. Interested persons may obtain information on this information
collection by contacting the following: Federal Energy Regulatory
Commission, 888 First Street, NE., Washington, DC
[[Page 1373]]
20426, Attention: Michael Miller, Officer of the Executive Director,
phone: (202) 502-8415, fax: (202) 273-0873, e-mail:
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\
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\148\ Order No. 486, Regulations Implementing the National
Environmental Policy Act, 52 FR 47,897 (Dec. 17, 1987), FERC Stats.
& Regs. ] 30,783 (1987).
\149\ 18 CFR 380.4(a)(2)(ii) (2005).
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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.
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\150\ 5 U.S.C. 601-12.
\151\ The RFA definition of ``small entity'' refers to the
definition provided in the Small Business Act, which defines a
``small business concern'' as a business that is independently owned
and operated and that is not dominant in its field of operation. 15
U.S.C. 632. The Small Business Size Standards component of the North
American Industry Classification System defines a small electric
utility as one that, including its affiliates, is primarily engaged
in the generation, transmission, and/or distribution of electric
energy for sale and whose total electric output for the preceding
fiscal years did not exceed 4 million MWh. 13 CFR 121.201 (2005).
---------------------------------------------------------------------------
209. The Commission adheres to its certification in the NOPR that
this rulemaking will not have a significant economic impact upon a
substantial number of small entities. As stated in the NOPR, EPAct 2005
directs the Commission to issue a rule adopting procedures for the
expeditious consideration of applications for the approval of
dispositions, consolidations, or acquisition, under this section. In
accordance with this directive, this rule implements section 203 of the
FPA. In particular, the rule increases the value threshold for filing a
section 203 application with the Commission from transactions in excess
of $50,000 to transactions in excess of $10 million (under amended
section 203 of the FPA). Further, the RFA directs agencies to consider
four regulatory alternatives to be considered in a rulemaking to lessen
the impact on small entities: Tiering or establishment of different
compliance or reporting requirements for small entities,
classification, consolidation, clarification or simplification of
compliance and reporting requirements, performance rather than design
standards, and exemptions. In this Final Rule, the Commission has
adopted tiering, and classification and simplification by classifying
the types of holding acquisitions that qualify for a grant of blanket
approval under section 203(a)(2). Further, the rule does not
substantially change the current requirements and regulations that
applicants must comply with for transactions subject to FPA section
203. Therefore, the Commission certifies that this rule will not have a
significant impact on a substantial number of small entities.
VII. Document Availability
210. In addition to publishing the full text of this document in
the Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's
Public Reference Room during normal business hours (8:30 a.m. to 5 p.m.
Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426.
211. From the Commission's Home Page on the Internet, this
information is available in the Commission's document management
system, eLibrary. The full text of this document is available on
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or
downloading. To access this document in eLibrary, type ``RM05-34'' in
the docket number field.
212. User assistance is available for eLibrary and the FERC's Web
site during normal business hours. For assistance, please contact FERC
Online Support at 1-866-208-3676 (toll free) or 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\
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\152\ See 5 U.S.C. 804(2).
\153\ See 5 U.S.C. 801(a)(1)(A).
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List of Subjects
18 CFR Part 2
Administrative practice and procedure; Electric power; Natural gas;
Pipelines; Reporting and recordkeeping requirements
18 CFR Part 33
Electric utilities; Reporting and recordkeeping requirements;
Securities
By Order of the Commission.
Magalie R. Salas,
Secretary.
0
In consideration of the foregoing, the Commission amends Chapter I,
Title 18, Code of Federal Regulations, as follows:
PART 2--GENERAL POLICY AND INTERPRETATIONS
0
1. The authority citation for part 2 is revised to read as follows:
Authority: 5 U.S.C. 601; 15 U.S.C. 717-717w, 3301-3432; 16
U.S.C. 792-825y, 2601-2645; 42 U.S.C. 4321-4361, 7101-7352; Pub. L.
No. 109-58, 119 Stat. 594.2.
0
2. Section 2.26 is amended by revising paragraph (e) and by adding
paragraph (f) to read as follows:
Sec. 2.26. Policies concerning review of applications under section
203.
* * * * *
(e) Effect on regulation. (1) Where the affected state commissions
have authority to act on the transaction, the Commission will not set
for hearing whether the transaction would impair effective regulation
by the state commissions. The application should state whether the
state commissions have this authority.
(2) Where the affected state commissions do not have authority to
act on the transaction, the Commission may set for hearing the issue of
whether the transaction would impair effective state regulation.
(f) Under section 203(a)(4) of the Federal Power Act (16 U.S.C.
824b), in
[[Page 1374]]
reviewing a proposed transaction subject to section 203, the Commission
will also consider whether the proposed transaction will result in
cross-subsidization of a non-utility associate company or pledge or
encumbrance of utility assets for the benefit of an associate company,
unless that cross-subsidization, pledge, or encumbrance will be
consistent with the public interest.
PART 33--APPLICATIONS UNDER FEDERAL POWER ACT SECTION 203
0
3. The authority citation for part 33 is revised to read as follows:
Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42
U.S.C. 7101-7352; Pub. L. No. 109-58, 119 Stat. 594.
0
4. The heading of part 33 is revised to read as set forth above.
0
5. Section 33.1 is revised to read as follows:
Sec. 33.1. Applicability, definitions, and blanket authorizations.
(a) Applicability. (1) The requirements of this part will apply to
any public utility seeking authorization under section 203 of the
Federal Power Act to:
(i) Sell, lease, or otherwise dispose of the whole of its
facilities subject to the jurisdiction of the Commission, or any part
thereof of a value in excess of $10 million;
(ii) Merge or consolidate, directly or indirectly, such facilities
or any part thereof with those of any other person, by any means
whatsoever;
(iii) Purchase, acquire, or take any security with a value in
excess of $10 million of any other public utility; or
(iv) Purchase, lease, or otherwise acquire an existing generation
facility:
(A) That has a value in excess of $10 million; and
(B) That is used in whole or in part for wholesale sales in
interstate commerce by a public utility.
(2) The requirements of this part shall also apply to any holding
company in a holding company system that includes a transmitting
utility or an electric utility if such holding company seeks to
purchase, acquire, or take any security with a value in excess of $10
million of, or, by any means whatsoever, directly or indirectly, merge
or consolidate with, a transmitting utility, an electric utility
company, or a holding company in a holding company system that includes
a transmitting utility, or an electric utility company, with a value in
excess of $10 million.
(b) Definitions. For the purposes of this part, as used in section
203 of the Federal Power Act (16 U.S.C. 824b)
(1) Existing generation facility means a generation facility that
is operational at or before the time the section 203 transaction is
consummated. ``The time the transaction is consummated'' means the
point in time when the transaction actually closes and control of the
facility changes hands. ``Operational'' means a generation facility for
which construction is complete (i.e., it is capable of producing
power). The Commission will rebuttably presume that section 203(a)
applies to the transfer of any existing generation facility unless the
utility can demonstrate with substantial evidence that the generator is
used exclusively for retail sales.
(2) Non-utility associate company means any associate company in a
holding company system other than a public utility or electric utility
company that has wholesale or retail customers served under cost-based
regulation.
(3) Value when applied to:
(i) Transmission facilities, generation facilities, transmitting
utilities, electric utility companies, and holding companies, means the
market value of the facilities or companies for transactions between
non-affiliated companies; the Commission will rebuttably presume that
the market value is the transaction price. For transactions between
affiliated companies, value means original cost undepreciated, as
defined in the Commission's Uniform System of Accounts prescribed for
public utilities and licensees in part 101 of this chapter, or original
book cost, as applicable;
(ii) Wholesale contracts, means the market value for transactions
between non-affiliated companies; the Commission will rebuttably
presume that the market value is the transaction price. For
transactions between affiliated companies, value means total expected
nominal contract revenues over the remaining life of the contract; and
(iii) Securities, means market value for transactions between non-
affiliated companies; the Commission will rebuttably presume that the
market value is the agreed-upon transaction price. For transactions
between affiliated companies, value means market value if the
securities are widely traded, in which case the Commission will
rebuttably presume that market value is the market price at which the
securities are being traded at the time the transaction occurs; if the
securities are not widely traded, market value is determined by:
(A) Determining the value of the company that is the issuer of the
equity securities based on the total undepreciated book value of the
company's assets;
(B) Determining the fraction of the securities at issue by dividing
the number of equity securities involved in the transaction by the
total number of outstanding equity securities for the company; and
(C) Multiplying the value determined in paragraph (b)(3)(iii)(A) of
this section by the value determined in paragraph (b)(3)(iii)(B) of
this section (i.e., the value of the company multiplied by the fraction
of the equity securities at issue).
(4) The terms associate company, electric utility company, foreign
utility company, holding company, and holding company system have the
meaning given those terms in the Public Utility Holding Company Act of
2005. The term holding company does not include: A State, any political
subdivision of a State, or any agency, authority or instrumentality of
a State or political subdivision of a State; or an electric power
cooperative.
(c) Blanket Authorizations. (1) Any holding company in a holding
company system that includes a transmitting utility or an electric
utility is granted a blanket authorization under section 203(a)(2) of
the Federal Power Act to purchase, acquire, or take any security of:
(i) A transmitting utility or company that owns, operates, or
controls only facilities used solely for transmission in intrastate
commerce and/or sales of electric energy in intrastate commerce;
(ii) A transmitting utility or company that owns, operates, or
controls only facilities used solely for local distribution and/or
sales of electric energy at retail regulated by a state commission; or
(iii) A transmitting utility or company if the transaction involves
an internal corporate reorganization that does not present cross-
subsidization issues and does not involve a traditional public utility
with captive customers.
(2) Any holding company in a holding company system that includes a
transmitting utility or an electric utility is granted a blanket
authorization under section 203(a)(2) of the Federal Power Act to
purchase, acquire, or take:
(i) Any non-voting security (that does not convey sufficient veto
rights over management actions so as to convey control) in a
transmitting utility, an electric utility company, or a holding company
in a holding company system that includes a transmitting utility or an
electric utility company; or
(ii) Any voting security in a transmitting utility, an electric
utility company, or a holding company in a holding company system that
includes a
[[Page 1375]]
transmitting utility or an electric utility company if, after the
acquisition, the holding company will own less than 10 percent of the
outstanding voting securities; or
(iii) Any security of a subsidiary company within the holding
company system.
(3) The blanket authorizations granted under paragraph (c)(2) of
this section are subject to the conditions that the holding company
shall not:
(i) Borrow from any electric utility company subsidiary in
connection with such acquisition; or
(ii) Pledge or encumber the assets of any electric utility company
subsidiary in connection with such acquisition;
(4) A holding company granted blanket authorizations in section
(c)(2) shall provide the Commission with the same information, on the
same basis, that the holding company provides to the Securities and
Exchange Commission in connection with any securities purchased,
acquired or taken pursuant to this section.
(5) Any holding company in a holding company system that includes a
transmitting utility or an electric utility is granted a blanket
authorization under section 203(a)(2) of the Federal Power Act to
acquire a foreign utility company. However, if such holding company or
any of its affiliates, its subsidiaries, or associate companies within
the holding company system have captive customers in the United States,
the authorization is conditioned on the holding company verifying by a
duly authorized corporate official of the holding company that the
proposed transaction:
(i) Will not have any adverse effect on competition, rates, or
regulation; and
(ii) Will not result in, at the time of the transaction or in the
future:
(A) Any transfer of facilities between a traditional utility
associate company with wholesale or retail customers served under cost-
based regulation and an associate company;
(B) Any new issuance of securities by traditional utility associate
companies with wholesale or retail customers served under cost-based
regulation for the benefit of an associate company;
(C) Any new pledge or encumbrance of assets of a traditional
utility associate company with wholesale or retail customers served
under cost-based regulation for the benefit of an associate company; or
(D) Any new affiliate contracts between non-utility associate
companies and traditional utility associate companies with wholesale or
retail customers served under cost-based regulation, other than non-
power goods and services agreements subject to review under sections
205 and 206 of the Federal Power Act.
(iii) A transaction by a holding company subject to the conditions
in paragraphs (c)(5)(i) and (ii) of this section will be deemed
approved only upon filing the information required in paragraphs
(c)(5)(i) and (ii) of this section.
0
6. Section 33.2 is amended to add paragraph (j) to read as follows:
Sec. 33.2. Contents of application--general information requirements.
* * * * *
(j) An explanation, with appropriate evidentiary support for such
explanation (to be identified as Exhibit M to the application):
(1) Of how applicants are providing assurance that the proposed
transaction will not result in cross-subsidization of a non-utility
associate company or pledge or encumbrance of utility assets for the
benefit of an associate company; or
(2) If no such assurance can be provided, an explanation of how
such cross-subsidization, pledge, or encumbrance will be consistent
with the public interest.
0
7. Section 33.11 is added to read as follows:
Sec. 33.11. Commission procedures for the consideration of
applications under section 203 of the FPA.
(a) The Commission will act on a completed application for approval
of a transaction (i.e., one that is consistent with the requirements of
this part) not later than 180 days after the completed application is
filed. If the Commission does not act within 180 days, such application
shall be deemed granted unless the Commission finds, based on good
cause, that further consideration is required to determine whether the
proposed transaction meets the standards of section 203(a)(4) of the
FPA and issues, by the 180th day, an order tolling the time for acting
on the application for not more than 180 days, at the end of which
additional period the Commission shall grant or deny the application.
(b) The Commission will provide for the expeditious consideration
of completed applications for the approval of transactions that are not
contested, do not involve mergers, and are consistent with Commission
precedent. The transactions that would generally warrant expedited
review include:
(1) A disposition of only transmission facilities, particularly
those that both before and after the transaction remain under the
functional control of a Commission-approved regional transmission
organization or independent system operator; and
(2) Transactions that do not require an Appendix A analysis.\1\
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\1\ Inquiry Concerning the Commission's Merger Policy Under the
Federal Power Act: Policy Statement, Order No. 592, 61 FR 68,595
(Dec. 30, 1996), FERC Stats. & Regs. ] 31,044 (1996),
reconsideration denied, Order No. 592-A, 62 FR 33,340 (June 19,
1997), 79 FERC ] 61,321 (1997) (Merger Policy Statement).
Note: The following appendix will not appear in the Code of
---------------------------------------------------------------------------
Federal Regulations.
Appendix List of Intervenors and Commenters
Intervenors
California Public Utilities Commission.
Edison Mission Energy, Edison Mission Marketing & Trading, Inc.,
and Midwest Generation EME, LLC.
Public Service Commission of Wisconsin.
Public Utilities Commission of Ohio.
Southern California Edison Company.
Commenters
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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.
[[Page 1376]]
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.
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[FR Doc. 06-77 Filed 1-5-06; 8:45 am]
BILLING CODE 6717-01-P