Repeal of the Public Utility Holding Company Act of 1935 and
Enactment of the Public Utility Holding Company Act of 2005
[Federal Register: December 20, 2005 (Volume 70, Number 243)]
[Rules and Regulations]
[Page 75591-75645]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20de05-22]
[[Page 75592]]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Parts 365 and 366
[Docket No. RM05-32-000, Order No. 667]
Repeal of the Public Utility Holding Company Act of 1935 and
Enactment of the Public Utility Holding Company Act of 2005
Issued December 8, 2005.
AGENCY: Federal Energy Regulatory Commission, DOE.
ACTION: Final rule.
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SUMMARY: In this final rule, the Federal Energy Regulatory Commission
(Commission) is amending its regulations to implement the repeal of the
Public Utility Holding Company Act of 1935 and the enactment of the
Public Utility Holding Company Act of 2005, by adding a new subchapter
and part to its regulations and removing its exempt wholesale generator
rules as they are no longer necessary.
DATES: This final rule will become effective on February 8, 2006.
FOR FURTHER INFORMATION CONTACT:
Brandon Johnson (Legal Information), Federal Energy Regulatory
Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-6143.
Lawrence Greenfield (Legal Information), Federal Energy Regulatory
Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-6415.
James Guest (Technical Information), Federal Energy Regulatory
Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-6614.
SUPPLEMENTARY INFORMATION:
Before Commissioners: Joseph T. Kelliher, Chairman; Nora Mead Brownell,
and Suedeen G. Kelly.
Introduction
1. On August 8, 2005, the Energy Policy Act of 2005 (EPAct 2005)
\1\ was signed into law. In relevant part, it repeals the Public
Utility Holding Company Act of 1935 (PUHCA 1935) \2\ and enacts the
Public Utility Holding Company Act of 2005 (PUHCA 2005),\3\ which, with
one exception not relevant here, will become effective six months from
the date of enactment (February 8, 2006).\4\ Sections 1266, 1272, and
1275 of EPAct 2005 direct the Commission to issue certain rules and to
provide detailed recommendations to Congress on technical and
conforming amendments to federal law within four months after the date
of enactment, i.e., by December 8, 2005.\5\ In addition, EPAct 2005
directs the Commission to issue a final rule exempting certain entities
from the federal access to books and records provisions of EPAct 2005
within 90 days of the effective date of Title XII, Subtitle F of EPAct
2005. This rulemaking addresses all mandatory rulemaking requirements
contained in PUHCA 2005.
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\1\ Energy Policy Act of 2005, Public Law No. 109-58, 119 Stat.
594 (2005).
\2\ 15 U.S.C. 79a et seq. (2000).
\3\ EPAct 2005 at Sec. 1261 et seq.
\4\ Id. at Sec. 1274(a).
\5\ Id. at Sec. Sec. 1266, 1272, 1275.
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2. On September 16, 2005, the Commission issued a notice of
proposed rulemaking (NOPR) \6\ in which it proposed to add a new
Subchapter U and Part 366 to Title 18 of the Code of Federal
Regulations to implement Title XII, Subtitle F of EPAct 2005 and to
remove Subchapter T and Part 365 of Title 18 of the Code of Federal
Regulations.
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\6\ Repeal of the Public Utility Holding Company Act of 1935 and
Enactment of the Public Utility Holding Company Act of 2005, Notice
of Proposed Rulemaking, 70 Fed. Reg. 55,805 (2005), FERC Stats. & Regs. ]
32,588 (2005).
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3. Section 1264 of PUHCA 2005 concerns Commission access to the
books and records of holding companies and other companies in holding
company systems, and section 1275 of PUHCA 2005 addresses the
Commission's review and authorization of the allocation of costs for
non-power goods or administrative or management services when requested
by a holding company system or state commission. As we stated in the
NOPR, the federal books and records access provision, section 1264, and
the non-power goods and services provision, section 1275, of PUHCA 2005
supplement the Commission's existing authorities under the Federal
Power Act (FPA) \7\ and the Natural Gas Act (NGA) \8\ to protect
customers against improper cross-subsidization or encumbrances of
assets, including the Commission's broad authority under FPA section
301 and NGA section 8 to obtain the books and records of regulated
companies and any person that controls or is controlled by such
companies if relevant to jurisdictional activities.\9\
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\7\ 16 U.S.C. 824d-e (2000).
\8\ 15 U.S.C. 717c-d (2000).
\9\ 16 U.S.C. 825 (2000); 15 U.S.C. 717g (2000).
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4. In responding to the comments on the NOPR and in deciding
whether to adopt the proposals in the NOPR, our decisionmaking has been
guided by the clear intent of Congress to repeal the regulatory regime
established by PUHCA 1935 and to rely on state regulatory authorities
and the Commission to protect energy customers, by supplementing the
Commission's books and records authority under PUHCA 2005 and by
enhancing our already significant authority over public utility
mergers, acquisitions and dispositions of jurisdictional
facilities.\10\ As we recognized in the NOPR, PUHCA 2005 is primarily a
``books and records access'' statute and does not give the Commission
any new substantive authorities. In fact, the only substantive
requirement contained in the new law is that we address requests
involving certain allocations of costs of non-power goods and services.
Accordingly, as discussed in greater detail below, we are rejecting
requests that we re-impose particular requirements in PUHCA 1935 that
Congress chose not to include in PUHCA 2005.
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\10\ EPAct 2005 at Sec. 1289.
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5. Our primary means of protecting customers served by
jurisdictional companies that are members of holding company systems
continues to be the FPA and NGA. In particular, the Commission's rate
authorities and information access authorities under the FPA and NGA
enable the Commission to detect and disallow from jurisdictional rates
any imprudently-incurred, unjust or unreasonable, or unduly
discriminatory or preferential costs resulting from affiliate
transactions between companies in the same holding company system.\11\
This includes both power transactions and non-power goods or services
transactions between Commission-regulated companies that have captive
customers and their ``unregulated'' affiliates. The Commission
routinely places code of conduct restrictions on power sales at market-
based rates between regulated and non-regulated affiliates. In the
context of registered holding companies, we also have placed conditions
on non-power goods and services transactions involving public
utilities. Further, as discussed in greater detail infra, in the
context of individual rate cases involving public utilities that seek
to flow through in jurisdictional rates the costs of affiliate
purchases of non-power goods or services, the Commission has the
ability to protect customers by reviewing the prudence and the justness
[[Page 75593]]
and reasonableness of such costs. The Commission also has adopted rules
and policies regarding cash management practices or arrangements that
involve Commission-jurisdictional companies. Importantly, repeal of
PUHCA 1935 also does not repeal non-PUHCA securities laws and
accounting requirements for companies.
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\11\ Since the vast majority of registered holding companies
have been electric public utility holding companies, our description
here focuses primarily on the FPA. However, except for merger and
corporate authority under the FPA, our authorities and processes
under the NGA are similar.
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6. It is against this backdrop that we have determined not to
require in this final rule all of the filing requirements that we
originally proposed to adopt. In addition, in response to the numerous
comments filed, we have determined that it is appropriate to permit
certain exemptions from those requirements that are being adopted,
based upon an expedited notification process. An overview of the final
rule's requirements and exemptions is provided below. We emphasize,
however, that this final rule (including its exemptions) does not
affect the Commission's independent ability to obtain access to books
and records under the FPA and NGA. Further, to the extent additional
rulemakings or orders may be needed to protect customers, the
Commission will take appropriate actions in the future. The Commission
will hold a technical conference no later than one year from the effective
date of PUHCA 2005 to assess whether additional actions are needed.
Overview of Final Rule
7. In the NOPR, the Commission proposed to incorporate in part 366
of its regulations, largely without modification, the provisions of
PUHCA 2005, and we have adopted a number of those proposals in the
final rule. However, based on the very constructive comments received,
the final rule modifies or departs from the approach in the NOPR in
several respects, and we summarize the final rule below.
8. In the NOPR, we proposed adopting several of the Securities and
Exchange Commission's (SEC) accounting and record-retention
requirements into our own regulations and stated that we did not intend
to broaden their applicability beyond the types of companies to which
they now apply. Specifically, the NOPR proposed to adopt the following
portions of the SEC's accounting and record-keeping requirements: 17
CFR 250.26 (financial statement and recordkeeping requirements for
registered holding companies and subsidiaries); 17 CFR 250.27
(classification of accounts prescribed for utility companies not
already subject thereto); 17 CFR 250.80 (definitions of terms used in
rules under section 13 of PUHCA 1935); 17 CFR 250.93 (accounts and
records of mutual and subsidiary service companies); 17 CFR 250.94
(annual reports by mutual and subsidiary service companies); 17 CFR
part 256 (uniform system of accounts for mutual and subsidiary service
companies) (SEC Uniform System of Accounts); and 17 CFR part 257
(preservation and destruction of records for registered holding
companies and of mutual and subsidiary service companies) (SEC record-
retention rules).
9. Additionally, the NOPR proposed to require companies to file
certain SEC forms with the Commission, including: SEC Form U-13-60
(annual report for mutual and subsidiary service companies); SEC Form
U-5S (annual report for registered holding companies); and a version of
SEC Form U-5A (notification of registration status).
10. As discussed further below, the Commission has concluded that
there is no statutory basis for continuing to apply the statutory
exemptions contained in PUHCA 1935, which Congress has repealed.\12\
Although, as also discussed below, we will provide certain exemptions
from PUHCA 2005, we will not re-create the PUHCA 1935 distinction
between ``exempt'' and ``registered'' holding companies. Accordingly,
we will apply the books and records requirements of PUHCA 2005 equally
to all holding companies. However, the Commission will give holding
companies until January 1, 2007, to comply with the Commission's
record-retention requirements; holding companies, in contrast to
traditional, centralized service companies (as distinguished from
service companies that are special-purpose companies such as a fuel
supply company or a construction company), will not be required to
comply with the Commission's Uniform System of Accounts.
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\12\ Section 5(a) of PUHCA 1935 provides five statutory exemptions for:
(1) Predominantly intrastate holding companies;
(2) Public-utility holding companies whose operations as such do
not extend beyond the State in which they are organized and states
contiguous thereto;
(3) Holding companies that are only incidentally a holding company;
(4) Holding companies that are temporarily holding companies; or
(5) Primarily foreign utility holding companies. 15 U.S.C.
79c(a)(1)-(5) (2000).
11. The final rule adopts modified, streamlined versions of 17 CFR
250.1, 250.26, 250.80, 250.93, 250.94, and 259.313 in Part 366 of its
regulations. Section 366.4(a) of our regulations will be a modified and
simplified version of 17 CFR 250.1(a), which originally required
registered holding companies to file SEC Form U-5A, notification of
registration. Section 366.4 requires holding companies to file a FERC-
65 (Notification of Holding Company Status), and, if they wish to claim
an exemption from PUHCA 2005 or a waiver of the Commission's
regulations thereunder, FERC-65A (Exemption Notification) or FERC-65B
(Waiver Notification). The final rule does not adopt the 17 CFR
250.1(b) (registration statement) and 250.1(c) (annual report for
holding companies, to be filed on SEC Form U-5S). Section 366.21 of our
regulations instead contains a modified version of 17 CFR 250.26
(financial statement and recordkeeping requirements for holding
companies and subsidiaries), including subparagraph (a)(2) (requirement
to maintain books and records for auditing purposes), paragraphs (d)
and (f) (compliance with Commission and other agencies' record-
retention rules), and paragraph (e) (savings clause for previous
accounting orders). It does not adopt paragraphs (a)(1) (mandating
compliance with SEC Regulation S-X), (b) (information to be supplied
with form SEC Form U-5S), (c) (mandating use of the equity method of
accounting), or (g) (cross reference to section 250.26). In section
366.1, we adopt the definitions contained in 17 CFR 250.80 (definitions
of terms), i.e., ``services,'' ``goods,'' and ``construction'', and we
add a definition for service company. We also adopt streamlined
versions of 17 CFR 250.93 (accounts and records of service companies),
250.94 (annual reports for service companies), and 259.313 (SEC Form U-
13-60, for annual reports pursuant to 250.94), in sections 366.21,
366.22 and 366.23, which prescribe the Uniform System of Accounts and
annual reporting requirement for service companies. The final rule does
not adopt 17 CFR 259.5s, and it does not require the submission of SEC
Form U-5S. The Commission has determined that the information in these
eliminated provisions is not relevant to the costs incurred by
jurisdictional entities or is not necessary or appropriate for the
protection of utility customers with respect to jurisdictional rates.
12. Specifically, the final rule also adopts the following
requirements:
(1) Holding companies will file FERC-65 (Notification of Holding
Company Status), which will be treated as an informational filing.
(2) Holding companies seeking to claim an exemption from PUHCA 2005
or waiver of the Commission's regulations thereunder may file FERC-65A
(Exemption Notification) or FERC-65B (Waiver Notification).
[[Page 75594]]
(3) Traditional, centralized service companies will be required to
file a newly-created FERC Form No. 60 (Annual Report for Service
Companies), which is based on a streamlined version of SEC Form U-13-
60. The FERC Form No. 60 eliminates the following supporting schedules
originally contained in SEC Form U-13-60: Outside Services Employed--
Account 923; Employee Pensions and Benefits--Account 926; General
Advertising Expenses--Account 930.1; Rents--Account 931; Taxes Other
Than Income Taxes--Account 408; Donations--Account 426.1; and Other
Deductions--Account 426.5. The schedules were eliminated to remove
information that is either duplicative or that the Commission has
determined is not necessary to carry out its statutory responsibilities
under PUHCA 2005.
(4) Unless otherwise exempted by Commission rule or order, all
holding companies and service companies must maintain and make
available to the Commission their books and records. In addition, all
holding companies and all service companies that do not currently
follow the Commission's record-retention requirements in Parts 125 and
225 of the Commission's regulations, as applicable, will be required to
transition to the Commission's requirements by January 1, 2007. Holding
companies registered under PUHCA 1935 that currently follow the SEC's
record-retention rules in 17 CFR Part 257, and their service companies,
have the option to follow either the Commission's or the SEC's record-
retention rules, as they exist on the day before the effective date of
PUHCA 2005, for calendar year 2006, but these entities must transition
to the Commission's record-retention rules by January 1, 2007. And, as
noted above, holding companies, unlike traditional, centralized service
companies, will not be required to comply with the Commission's Uniform
System of Accounts.
13. The NOPR did not propose any specific exemptions from the books
and records requirements of PUHCA 2005, except as required by section
1266 (i.e., persons that are holding companies solely with respect to
one or more exempt wholesale generators (EWGs), foreign utility
companies (FUCOs), or qualifying facilities (QFs)), but sought comments
on whether passive investors and mutual funds should be exempted.
Rather, we proposed to rely on case-by-case petitions for declaratory
order to determine what additional waivers are appropriate. Based on
the extensive comments received, in the final rule we have modified our
original proposal to rely on declaratory order requests for exemptions
and we have determined that it is appropriate to use an expedited
notification process to either exempt from the books and records
requirements of PUHCA 2005 or waive the Commission's accounting,
record-retention and reporting regulations thereunder for the following
persons and classes of transactions:
(1) Passive investors, including mutual funds and other financial
institutions;
(2) Commission-jurisdictional utilities that have no captive customers;
(3) Certain holding company and affiliate transactions that will
not affect jurisdictional rates;
(4) Electric power cooperatives;
(5) Local distribution companies;
(6) Single-state holding companies;
(7) Holding companies that own 100 MW or less of generation used
fundamentally for their own load or for sales to affiliated end-
users;\13\ and
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\13\ Holding companies that own more than 100 MW of generation
used fundamentally for their own load or for sales to affiliated end
users may seek waivers, and the Commission will consider them, on a
case-by-case basis.
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(8) Investors in independent transmission companies.
Other exemptions and waivers will be considered through the declaratory
order process on a case-by-base basis.
14. With respect to Commission review of service company cost
allocations in section 1275(b) and the exemption for single-state
holding companies in section 1275(d), the Commission sought comments as
to whether the Commission should require the formal filing of service
company cost-allocation agreements under the FPA and NGA, and whether
the Commission should apply its traditional ``market'' standard for the
pricing of non-power goods and services provided by system service
companies or instead adopt the SEC ``at-cost'' standard. We conclude
below that we will not require the formal filing of cost allocation
agreements and that we will not require any entities that are currently
using the SEC's ``at-cost'' standard for traditional centralized
service companies to switch to our ``market'' standard. With respect to
traditional, centralized service companies that use the ``at cost''
standard, we will apply a presumption that ``at cost'' pricing of the
non-power goods and services they provide to public utilities within
their holding company system is reasonable, but persons may file
complaints if they believe that use of at cost pricing results in costs
that are above market price. We will also retain the Commission's
existing ``market'' standard for non-power goods or services
transactions between special-purpose subsidiaries and public utilities.
15. With respect to EWGs, we proposed to cease making case-by-case
determinations of exempt wholesale generator status in the future and
we proposed to delete our EWG regulations. In light of the comments
received, we have determined that it is reasonable to interpret PUHCA
2005 to permit new wholesale sellers to obtain EWG status. We will thus
establish procedures in section 366.7 of our regulations for both self-
certification of EWG and FUCO status, and Commission determinations of
EWG and FUCO status, similar to the options available for entities
seeking QF status.
16. Additionally, for those definitions and other aspects of PUHCA
1935 that have been re-enacted as part of PUHCA 2005, we will, where
appropriate, follow the past practice and precedent of the SEC in
interpreting these provisions of PUHCA 2005 to the extent that they are
consistent with the statutory language adopted by Congress in PUHCA 2005.
17. Finally, we do not view this final rule as the only opportunity
to address the books and records requirements and related reporting
requirements under PUHCA 2005, exemptions from and waivers of these
requirements, and any other issues that may arise as a result of the
repeal of PUHCA 1935 and the implementation of PUHCA 2005. 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 (under PUHCA 2005
or the FPA or NGA) need to be considered. The technical conference will
also address any needed changes or additions to accounting, cost
allocation, recordkeeping, cross-subsidization, encumbrances of utility
assets, and related rules, including any changes necessary to address
difficulties with compliance encountered by companies within
previously-exempt holding company systems during this transition
period. In addition, while we do not adopt the SEC Uniform System of
Accounts and record-retention rules in 17 CFR parts 256 and 257 into
the Commission's regulations at this time, we will initiate a separate
rulemaking proceeding to address how the Commission's Uniform System of
Accounts and record-retention rules in Parts 101, 125, 201, and 225 of
its regulations can be modified to adopt or otherwise integrate the
relevant parts of the SEC's Uniform System of Accounts and record-
retention rules. The
[[Page 75595]]
Commission intends to issue a final rule on any appropriate accounting
or record-retention rule modifications well in advance of January 1,
2007, so that service companies will be able to transition to the
Commission's Uniform System of Accounts and record-retention rules and
holding companies can transition to the Commission's record-retention
rules by the January 1, 2007 deadline.
1. Definitions
18. The Commission proposed in the NOPR to largely incorporate in
section 366.1 of its regulations the text of section 1262 of EPAct
2005, which contains the definitions of relevant terms used in PUHCA
2005 and in our proposed regulations. Commenters suggested a number of
changes to these definitions. As these definitions are taken from
section 1262 of EPAct 2005, any modification would likely create
undesirable discrepancies between our regulations and the statutory
language. Accordingly, we will address these comments below under the
heading ``Additional Technical and Conforming Amendments,'' below.
However, to the extent that a given comment requesting clarifications
of the definitions proposed in section 366.1 of the Commission's
regulations can be addressed consistent with the statutory text, they
are addressed below.
Comments
19. American Public Power Association and National Rural Electric
Cooperative Association (APPA/NRECA) note that section 1268 of EPACT
2005 expressly exempts States and any political subdivision of a state
from the provisions of PUHCA 2005, while the definition of ``electric
utility company'' in the proposed section 366.1 includes ``any company
that owns or operates facilities used for the generation, transmission,
or distribution of electric energy for sale,'' which appears to come
directly from section 1262(5) of EPACT 2005. According to APPA/NRECA,
this section, read standing alone, could be construed to state that the
regulations apply to all electric utilities. APPA/NRECA thus urge the
Commission to make explicit the exclusion of states and their political
subdivisions from the regulations by cross-referencing in its
regulations the exclusion in section 1268 of the statute.\14\
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\14\ APPA/NRECA Comments at 42. See also City of Santa Clara
(Santa Clara) Comments at 23, Transmission Agency of Northern
California (TANC) Comments at 23.
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20. Coral Power, L.L.C. and Shell WindEnergy, Inc. (Coral Power and
Shell WindEnergy) request that the Commission deem EWGs, FUCOs, and QFs
not to be ``electric utility companies'' under PUHCA 2005, so that their
upstream owners will not be ``holding companies'' under PUHCA 2005.\15\
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\15\ Coral Power/Shell WindEnergy Comments at 9-10.
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21. With respect to the definition of ``public-utility companies,''
the Edison Electric Institute (EEI) urges the Commission to clarify
that energy marketers are not ``public-utility companies'' under the
PUHCA 2005 definition. EEI notes that, under PUHCA 2005, a ``public-
utility company'' is either an ``electric utility company,'' which is
an entity that owns or operates facilities used for the generation,
transmission or distribution of electric energy for sale, or a ``gas
utility company,'' which is basically an entity that owns or operates
facilities used for distribution at retail of natural or manufactured
gas. EEI further asserts that the SEC has found that the ownership of
only contracts and related books and records are not facilities used
for the generation of electric energy, but that only physical
facilities are used for the generation of electric energy. According to
EEI, if power marketers are not electric utility companies, their
parent companies would not be considered utility holding companies
under PUHCA 2005 by reason of their ownership of such marketers. The
same logic would apply to gas marketers, and they too, therefore,
should not be considered gas utility companies, provided they own no
physical gas distribution assets and their gas retail sales are made
through contracts.\16\
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\16\ EEI Comments at 19-20.
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22. Goldman Sachs Group (Goldman Sachs) and Morgan Stanley Capital
Group (Morgan Stanley) urge the Commission to adopt a rule similar to
the SEC's 7(d) that excludes owner-lessor and owner participants in
lease financing transactions involving utility assets from the
definition of ``public-utility company'' and their parent companies
from the definition of ``holding company.'' \17\
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\17\ Goldman Sachs Comments at 7, Morgan Stanley Comments at 5.
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23. NiSource Inc. (NiSource) requests that the Commission clarify
that gas utility companies authorized to make sales for resale of
natural gas pursuant to a blanket certificate are not subject to new
part 366 of the Commission's regulations.\18\
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\18\ NiSource Comments at 15.
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24. Finally, a number of commenters urge the Commission to amend
certain definitions to exclude rural electric cooperatives from the
scope of PUHCA 2005. APPA/NRECA argue that the Commission should
recognize that, under longstanding SEC precedent, electric cooperatives
were not regulated as public utility holding companies under PUHCA 1935
because member interests in cooperatives do not constitute a ``voting
security'' interest.\19\ Cooperatives state that the Commission could,
alternatively, declare definitively that member interests in
cooperatives do not constitute a ``voting security'' interest for
purposes of PUHCA 2005.\20\ If the Commission does not adopt this
interpretation of ``voting securities,'' APPA/NRECA urge the Commission
to, at the very least, make clear that those cooperatives that have
received no-action letters or other assurances in the past from the SEC
can continue to rely on those assurances without any need to seek
additional confirmation or a no-action assurance or waiver from the
Commission.\21\ Arizona Electric Power Cooperative, Inc., Southwest
Transmission Cooperative, Inc., and Sierra Southwest Cooperative
Services, Inc. (Cooperatives) argue that, while the Commission could
grant the Cooperatives an individual waiver, the better course would be
for the Commission to create a class exemption from PUHCA 2005 for
cooperatives. According to Cooperatives, with the recent amendment of
FPA Sec. 201(f), cooperatives are unlikely to qualify as public
utilities, and cooperatives do not operate any NGA jurisdictional
pipelines.\22\
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\19\ APPA/NRECA Comments at 42. See also Santa Clara Comments at
23, TANC Comments at 23.
\20\ Cooperatives Comments at 8.
\21\ APPA/NRECA Comments at 42-44. See also Tri-State Comments at 3-7.
\22\ Cooperatives Comments at 7. See also APPA/NRECA Comments at 44.
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Commission Determination
25. We will grant the request of APPA/NRECA and others to clarify
that section 1268 exempts from PUHCA 2005 states and any political
subdivision of a state. Accordingly, we clarify in section 366.2(a)
that, for the purposes of this subchapter, no provision of PUHCA 2005
shall apply to or be deemed to include: (1) The United States; (2) a
state or political subdivision of a state; (3) any foreign governmental
authority not operating in the United States; (4) any agency,
authority, or instrumentality of any entity referred to in
subparagraphs (1), (2) or (3); or (5) any officer, agent, or employee
of any entity referred to in subparagraphs (1), (2), (3), or (4) as
such in the course of his or her official duty.
[[Page 75596]]
26. In response to the request of Coral Power and ShellWindEnergy
that we consider EWGs, FUCOs, and QFs not to be ``electric utility
companies'' so that their upstream owners would not be holding
companies under PUHCA 2005, we note that Congress has exempted from
section 1264 of EPAct 2005 entities that are holding companies solely
with respect to EWGs, FUCOs, and QFs and that exemption is reflected in
the regulations we adopt herein. However, we clarify that EWGs
themselves are not considered ``electric utility companies'' under
PUHCA 2005. The purpose of creating ``exempt'' wholesale generators in
the amendments to section 32 of PUHCA 1935 made by the Energy Policy
Act of 1992 (EPAct 1992) \23\ was to exempt from PUHCA 1935 persons
that meet the definition of EWG. This was reflected in section 32(e) of
PUHCA 1935, which specifically provided that EWGs would not be
considered electric utility companies under PUHCA 1935 and would be
exempt. Here, we have determined to continue to allow generators to
obtain EWG status, so they will not be considered electric utility
companies subject to PUHCA 2005.
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\23\ 79 U.S.C. 79z-5a (2000).
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27. With respect to FUCOs and QFs, we clarify as follows. Section
1262(6) of PUHCA 2005 contains the term ``foreign utility company,''
and cross-references section 33 of PUHCA 1935. Section 33 of PUHCA
1935, as amended by EPAct 1992,\24\ provided that a FUCO would be
exempt from PUHCA 1935 and not deemed an electric utility company, but
the exemption would not apply or be effective unless the relevant state
commission(s) certified that they had the authority and resources to
protect ratepayers of public utility companies that are associated or
affiliated with the FUCO. As with EWGs, we will continue to allow
persons to obtain FUCO status. FUCOs will not be considered electric
utility companies subject to PUHCA 2005 and will be exempt from PUHCA
1935 if they can demonstrate that the relevant state commission(s) have
made the determination described in section 33 of PUHCA 1935. However,
even if FUCOs do not demonstrate that they should be totally exempted
from PUHCA 2005, we will waive the accounting, record-retention, and
reporting requirements thereunder.\25\ As for QFs, QFs previously
received an exemption from PUHCA pursuant to the Commission's
regulations under the Public Utility Regulatory Policies Act of 1978.
Nothing in PUHCA 2005 changes that.
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\24\ 79 U.S.C. Sec. 79z-5b (2000).
\25\ As discussed infra, we will waive our accounting, record-
retention, and reporting requirements for FUCOs, but we will not
exempt them from the general provision in section 1264 of PUHCA 2005
and repeated in section 366.2 of our regulations, which authorizes
access to their books and records as necessary, with respect to
jurisdictional rates.
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28. With respect to EEI's request that we clarify that power
marketers are not ``public-utility companies,'' we note that EEI's
reference to the ``Commission'' appears to be to the SEC rather than to
this Commission. While the SEC has not treated power marketers as
electric utility companies under PUHCA 1935, the Commission has
determined that electric marketers own facilities used for wholesale
sales, i.e., ``paper facilities,'' and therefore are public utilities
under the FPA. Similarly, we have treated natural gas marketers making
jurisdictional sales as natural gas companies under the NGA. In light
of long-standing SEC precedent in interpreting PUHCA 1935, we will
follow the same interpretation under PUHCA 2005 and will exempt power
and natural gas marketers from the definition of ``public-utility
company,'' as that term is used in PUHCA 2005. However, our
interpretation here does not change our long-standing precedent with
respect to these entities' jurisdictional status under the FPA and the NGA.
29. We will grant the request for clarification from Goldman Sachs
and Morgan Stanley that we not treat owner-lessors and owner
participants in lease financing transactions involving utility assets
as ``public-utility companies'' and their parents as ``holding companies''
under PUHCA 2005, so long as the ownership arrangements are passive.
30. We find that, as discussed below, electric power cooperatives
should not be regulated as holding companies under PUHCA 2005.
2. Books and Records Requirements
31. Sections 1264(a) and (b) of EPAct 2005 generally provide that
each holding company and each associate company of a holding company,
as well as each affiliate of a holding company or any subsidiary
company of a holding company, shall maintain, and shall make available
to the Commission, such books, accounts, memoranda, and other records
(books and records) as the Commission determines are relevant to the
costs incurred by a public utility or natural gas company that is an
associate company of such holding company and necessary or appropriate
for the protection of public utility or natural gas company customers
with respect to jurisdictional rates. Moreover, section 1264(c)
empowers the Commission to examine the books and records of any company
in a holding company system, or any affiliate thereof, that the
Commission determines are relevant to the costs incurred by a public
utility or natural gas company within such holding company system and
necessary or appropriate for the protection of public utility or
natural gas company customers with respect to jurisdictional rates.
Finally, section 1264(d) forbids any member, officer, or employee of
the Commission from divulging any fact or information that has come to
his or her knowledge during the course of the examination of such books
and records, except as may be directed by the Commission or a court of
competent jurisdiction.\26\ In the NOPR, the Commission proposed to
incorporate largely without modification the text of section 1264 by
adding section 366.2 to the Commission's regulations.
---------------------------------------------------------------------------
\26\ There are comparable confidentiality provisions in the FPA
and the NGA for public utility books and records and natural gas
company books and records. 16 U.S.C. 825 (2000); 15 U.S.C. 717g (2000).
---------------------------------------------------------------------------
32. In the NOPR, the Commission also proposed to adopt certain
accounting, cost-allocation, recordkeeping, and related rules
promulgated by the SEC for holding companies and their service
companies, as they existed on the date of enactment of EPAct 2005,
specifically 17 CFR 250.1, 250.26, 250.27, 250.80, 250.93, 250.94,
259.5S, and 259.313 and 17 CFR parts 256 and 257. The Commission
invited comments on which SEC reporting requirements the Commission
should retain, which ones it should not retain, and whether the
Commission should adopt any additional accounting, cost-allocation,
recordkeeping and related rules to carry out its statutory duties under
PUHCA 2005. Finally, the Commission stated that it does not intend to
broaden the applicability of any adopted reporting requirements beyond
the types of companies to which they now apply and invited comments as
to whether the proposed scope of applicability is appropriate.
33. The comments below focused primarily on the Commission's
proposal to adopt certain SEC regulations and are organized as follows:
(a) Scope of applicability, i.e., whether the books and records
requirements will apply to all holding companies equally or only to
holding companies registered under PUHCA 1935; (b) general comments on
the Commission's proposal to adopt certain SEC regulations, including
whether PUHCA 2005 grants the Commission the legal authority to adopt
them; (c) comments on particular provisions of the SEC regulations; (d)
other issues related to the adoption of
[[Page 75597]]
SEC regulations; and (e) other comments related to the books and
records requirements of section 1264.
a. Scope of Applicability
Comments
34. The majority of commenters urged the Commission to apply any
SEC regulations adopted equally to all holding companies, without
regard to whether an entity was registered or exempt under PUHCA 1935,
primarily because PUHCA 2005 does not state that PUHCA 1935 exemptions
should continue in force.\27\ APPA/NRECA state that the Commission
should apply any rules to the full universe of companies because, post-
PUHCA 1935, there is no longer a statutory basis for distinguishing
between the former registered and exempt holding companies. APPA/NRECA
contend that the Commission cannot treat some holding companies
differently from others without a reasonable basis and that their legal
designations under a now-repealed statute are not a reasonable basis.
According to APPA/NRECA, the Commission should make distinctions based
on the complexity of each holding company's corporate structure, the
quantity and type of business risks in the corporate family, the
magnitude of potential for cross subsidization (e.g., due to the
presence of common costs between the public utility and non-utility
businesses), and the geographic reach of the holding company (which
could make state regulation more difficult). They argue that, to avoid
charges of undue discrimination, the Commission can apply the rules to
all holding companies initially, announce these factors as among those
it will consider in granting exemptions, and then invite requests for
exemption from some or all of the reporting companies.\28\ Similarly,
American Electric Power Service Corporation (AEP) and National Fuel Gas
argue that the statute mandates equal treatment of all holding
companies.\29\
---------------------------------------------------------------------------
\27\ See, e.g., Allegheny Energy, Inc. (Allegheny) Comments at
2, American National Power, Inc. (American National Power) Comments
at 3, American Public Gas Association Comments at 3; Arkansas Public
Service Commission (Arkansas PSC) Comments at 19, E.ON AG and LG&E
Energy LLC (E.ON/LG&E Energy) Comments at 8, Missouri Public Service
Commission (Missouri PSC) Comments at 25, National Fuel Gas Company
(National Fuel Gas) Comments at 6, National Association of
Regulatory Utility Commissioners (NARUC) Comments at 7, Southern
Company Services Comments at 2-3. But see Detroit Edison Company
(Detroit Edison) Reply Comments at 1, PPL Companies (PPL) Reply
Comments at 3-4 (urging Commission to reject comments proposing to
apply SEC regulations to holding companies exempted from PUHCA 1935).
\28\ APPA/NRECA Comments at 30-31.
\29\ AEP Comments at 2-3, National Fuel Gas Reply Comments at 3-4.
---------------------------------------------------------------------------
35. However, a number of commenters argue that the Commission
should continue to exempt under PUHCA 2005 those holding companies
exempted under PUHCA 1935 and SEC precedent. MidAmerican Energy Company
(MidAmerican) states that the Commission should not impose a new set of
accounting and reporting requirements on entities that have been exempt
from the requirements developed by the SEC to enforce PUHCA 1935.
According to MidAmerican, the information required under the SEC rules
would require these entities to prepare and file reports that are
duplicative of information contained in reports already filed with the
Commission (e.g., FERC Forms 1 and 2 and the quarterly financial
reports) and reports filed with the SEC (e.g., Form 10-K and Form 10-Q)
and imposes an unnecessary burden and expense on such entities and
provides no significant additional information to the Commission.
Accordingly, MidAmerican states that the Commission should make it
perfectly clear that its proposal to adopt the accounting, cost-
allocation, recordkeeping and related rules promulgated by the SEC
applicable to registered holding companies and their service companies
does not extend to public utility holding companies that were not
registered under PUHCA 1935 and that, in addition, such rules should
not apply to any entities that may become public utility holding
companies after February 8, 2006, the effective date of repeal of PUHCA
1935.\30\
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\30\ MidAmerican Comments at 5-7. See also CEOB Comments (3)
(supports case-by-case exemptions), Chairman Barton Reply Comments
at 5, Detroit Edison Comments at 3-5, Questar Reply Comments at 2.
---------------------------------------------------------------------------
36. FirstEnergy suggests that, if the Commission adopts this
proposal, it should clarify the regulatory text of proposed section
366.2(e) to delineate between those holding company systems to which
the rules apply and those that are exempt from such provisions, and
should explain the reasons justifying such distinction.\31\ Alcoa
states that, even if the Commission decides not to exempt from the
reach of proposed section 366.2 all companies that are currently exempt
holding companies under PUHCA 1935, consideration at least should be
given to blanket exemptions for holding companies having a section
3(a)(3) exemption which are, by definition and determination by SEC,
engaged in a business other than being a public utility holding
company.\32\
---------------------------------------------------------------------------
\31\ FirstEnergy Comments at 9.
\32\ Alcoa Comments at 5.
---------------------------------------------------------------------------
Commission Determination
37. With respect to the general applicability of the federal access
to books and records requirements in section 1264 of EPAct 2005, there
is no basis in PUHCA 2005 for distinguishing between holding companies
based on their registered or exempt status under PUHCA 1935.
Accordingly, the Commission will subject all holding company systems,
whether previously exempt or registered, to the books and records
requirements that PUHCA 2005 imposes on holding companies and
affiliates, associate companies, and subsidiaries thereof, unless they
qualify for one of the statutory exemptions provided for under section
1266 of PUHCA 2005.\33\ We have also determined that, while we cannot
exempt certain persons from the statutory requirements of PUHCA 2005,
we can and should grant waivers of the accounting, record-retention,
and reporting requirements adopted herein for certain persons and
classes of transactions. Additionally, for entities that do have to
comply with our filing requirements, we will limit the filings that
have to be made and will delay until January 1, 2007, the compliance
deadline for companies not currently subject to the SEC rules. Finally,
throughout the following discussion, we will distinguish between
obligations that apply to all service companies and those that apply to
traditional, centralized service companies.\34\ Traditional,
centralized service companies are a subset of service companies that
holding companies have formed. They provide certain specialized
services \35\ to other
[[Page 75598]]
companies in the holding company system. They are to be distinguished
from other service companies that are special-purpose companies such as
a fuel supply company or a construction company.
---------------------------------------------------------------------------
\33\ Section 1266, discussed infra, requires the Commission to
exempt any person that is a holding company solely with respect to
EWGs, FUCOs, and QFs. It also requires the Commission to exempt a
person or transaction if it finds that the books and records of a
person are not relevant to jurisdictional rates or a class of
transactions is not relevant to jurisdictional rates.
\34\ ``Service companies'' are defined in section 366.1 as ``any
associate company within a holding company system organized
specifically for the purpose of providing non-power goods or
services or the sale of goods or construction work to any public
utility in the same holding company system.''
\35\ These ``services,'' as defined in section 366.1, include
``any managerial, financial, legal, engineering, purchasing,
marketing, auditing, statistical, advertising, publicity, tax,
research, or any other service (including supervision or negotiation
of construction or of sales), information or data, which is sold or
furnished for a charge.''
---------------------------------------------------------------------------
38. Specifically, the Commission will require the following for
entities that are not otherwise exempted from PUHCA 2005 requirements
or granted a waiver of the Commission's regulations thereunder:
(1) Unless otherwise exempted by Commission rule or order or
granted a waiver, all holding companies and all service companies that
do not currently follow the Commission's record-retention requirements
in Parts 125 and 225 of the Commission's regulations must, effective
January 1, 2007, comply with the Commission's record-retention
requirements. Formerly-registered holding companies and service
companies in such holding company systems that currently follow the
SEC's record-retention rules in 17 CFR part 257 have the option, until
December 31, 2006, to follow either the Commission's or the SEC's
record-retention requirements. But these service companies must
transition to the Commission's rules by January 1, 2007. Formerly-
exempt holding companies and service companies within such holding
company systems, which currently do not follow either the SEC's or the
Commission's record-retention requirements will not be required to
comply with the Commission's record-retention requirements until
January 1, 2007.
(2) Unless otherwise exempted by Commission rule or order or
granted a waiver, traditional, centralized service companies (i.e.,
those that are not special-purpose companies such as a fuel supply
company or a construction company) that do not currently follow the
Commission's Uniform System of Accounts in parts 101 and 201 of the
Commission's regulations, will be given until January 1, 2007, to
transition to the Commission's Uniform System of Accounts. Traditional,
centralized service companies in formerly-registered holding company
systems that currently follow the SEC's Uniform System of Accounts have
the option to follow either the Commission's or the SEC's Uniform
System of Accounts for calendar year 2006. But these service companies
must transition to the Commission's rules by January 1, 2007.
Traditional, centralized service companies within formerly-exempt
holding company systems, which currently do not follow either the SEC's
or the Commission's Uniform System of Accounts, will not be required to
comply with the Commission's Uniform System of Accounts until January
1, 2007. And, as noted above, holding companies, while they will be
required to comply with the Commission's record-retention requirements,
will not be required to comply with the Commission's Uniform System of
Accounts.
(3) All entities that are currently or become holding companies
under PUHCA 2005, whether previously exempt or registered under PUHCA
1935, must file FERC-65 (Notification of Holding Company Status), which
will be treated as an informational filing, and holding companies
seeking to claim an exemption from PUHCA 2005 or waiver of the
Commission's regulations there under may file FERC-65A (Exemption
Notification) or FERC-65B (Waiver Notification). All persons that are
holding companies on the effective date of PUHCA 2005 must file FERC-65
within 30 days of the effective date of PUHCA 2005, and any person that
becomes a holding company thereafter must file FERC-65 within 30 days
after becoming a holding company; and
(4) All traditional, centralized service companies will be required
to submit an annual report on FERC Form No. 60. Such service companies
in formerly-registered holding company systems must submit their first
annual report, for calendar year 2005, by May 1, 2006. Such service
companies in formerly-exempt holding company systems will be required
to submit their first FERC Form No. 60, for calendar year 2007, by May
1, 2008.
39. The Commission will not require the filing of SEC Forms U-5A
(notification of registration status), U-5S (annual reports for
registered holding companies), U3A-2 (statement by holding company
claiming exemption), or U-5B (registration statement), as previously
proposed or suggested by some commenters. Information in these forms is
in many cases available elsewhere and/or was for the purpose of
monitoring activities or transactions that, with the repeal of PUHCA
1935, are no longer prohibited or no longer require prior approval.
Additionally, this information is either not relevant to the costs
incurred by jurisdictional entities or is not necessary or appropriate
for the protection of utility customers with respect to jurisdictional
rates. Further, information needed to protect against inappropriate
cross-subsidization will be contained in the accounting and record-
keeping requirements that we are adopting herein.
b. General Comments Concerning Adoption of SEC Regulations
Comments
40. APPA/NRECA suggest that, rather than incorporate the SEC rules
by reference, the Commission should import the actual wording (with
appropriate revisions as discussed below) into its own regulations.
Merely cross-referencing existing SEC regulations (as proposed section
366.2(e) would do) would fail in its purpose if the SEC subsequently
revises its own regulations to eliminate its PUHCA 1935-related
regulations. Moreover, rather than adopt the SEC rules word-by-word,
APPA/NRECA urge the Commission to make certain wording adjustments and
offer rationales based on the current and likely future industry
structure. \36\
---------------------------------------------------------------------------
\36\ APPA/NRECA Comments at 23-24. See also FirstEnergy Service
Company (FirstEnergy) Comments at 9.
---------------------------------------------------------------------------
41. EEI urges the Commission to integrate whatever it adopts from
SEC practice into current Commission procedures and forms. According to
EEI, repeal of PUHCA 1935 was intended to reduce the level of holding
company regulation, but if current exempt holding companies suddenly
are required to contend with unfamiliar SEC practice, it would have
precisely the opposite effect. These formerly-exempt companies in
effect would become subject to a new level of complex regulation. To
avoid this unintended consequence of repealing PUHCA 1935, EEI believes
that the Commission should seek to integrate whatever it adopts from
SEC practice into current Commission procedures and forms, which would
involve simply including existing public filings, in particular a holding
company's SEC Form 10-K, as exhibits to the Commission's Form 1.\37\
---------------------------------------------------------------------------
\37\ EEI Comments at 3-4.
---------------------------------------------------------------------------
42. For the same reasons, EEI requests that the Commission provide
a reasonable period between the effective date of its new rules and the
date on which the initial filings will be due. EEI proposes that the
initial filings should be due in April 2007, giving companies time to
adopt any new recordkeeping and reporting requirements and to file
information starting with the next round of Form 1 for which the new
information would be available. The Commission also should specify the
format that will be required for filings under its new rules, and the
Commission should make clear when adopting the final rule, the date(s)
on which companies will first be required
[[Page 75599]]
to make any newly required filings under such rules.\38\
---------------------------------------------------------------------------
\38\ Dominion Comments at 3, EEI Comments at 6.
---------------------------------------------------------------------------
43. Georgia Public Service Commission (Georgia PSC) urges the
Commission to ensure that the rules to implement PUHCA 2005 provide
that the Commission will have access to all of the information and
documents previously provided to the SEC under PUHCA 1935. Georgia PSC
emphasizes that state commissions have relied upon the filings made by
holding companies with the SEC and on audits of holding companies
performed by the SEC as a crucial source of information necessary in
setting rates for the holding companies' subsidiaries that are
regulated by state commissions. Accordingly, the Commission should
adopt all provisions of the SEC rules and retain all SEC reporting
requirements.\39\ Similarly, the California Electricity Oversight Board
(CEOB) and Utility Workers Union of American (Utility Workers) supports
the Commission's adoption of the SEC accounting, cost-allocation,
recordkeeping, and related rules identified in the PUHCA NOPR.\40\
---------------------------------------------------------------------------
\39\ Georgia PSC Comments at 1.
\40\ CEOB Comments at 2-3, Utility Workers Comments at 3.
---------------------------------------------------------------------------
44. Entergy Services, Inc. states that it agrees with the
Commission's proposal to adopt the SEC regulations, but that the
Commission should limit the applicability of these rules to those items
that are ``relevant to costs incurred by a public utility or natural
gas company'' and ``necessary or appropriate for the protection of
utility customers with respect to jurisdictional rates'' as required by
EPAct 2005 section 1264(a).\41\ Similarly, FirstEnergy argues that the
Commission should provide a clear explanation of why each category of
information that is to be maintained is within the statutory limits
above. To reflect these limits, FirstEnergy argues that, at a minimum,
the Commission should modify proposed section 366.2(e), consistent with
the other subsections of section 366.2, to add the following
qualification at the end of the paragraph: ``insofar as the Commission
determines that such accounting, cost-allocation and related rules are
relevant to costs incurred by a public utility or natural gas company
that is an associate company of such holding company and necessary or
appropriate for the protection of utility customers with respect to
jurisdictional rates.''\42\
---------------------------------------------------------------------------
\41\ Entergy Comments at 3.
\42\ FirstEnergy Comments at 6.
---------------------------------------------------------------------------
45. Several commenters argued that the Commission lacks the
authority to adopt SEC regulations under PUHCA 2005\43\ or that PUHCA
2005 does not specifically authorize the imposition of reporting
requirements.\44\ AGL Resources, Inc. (AGL Resources) questions the
appropriateness of any requirement to file any reports at all,
emphasizing that the requirement in section 1264 to maintain records
does not amount to a requirement to file reports. AGL Resources
emphasizes that section 14 of PUHCA 1935, which permits the SEC to
require certain reports from companies subject to its jurisdiction, has
been repealed by EPAct 2005, and the EPAct did not grant the Commission
similar authority.\45\
---------------------------------------------------------------------------
\43\ See, e.g., Energy East Comments at 4-7, National Fuel Gas
Comments at 2.
\44\ See, e.g., E.ON/LG&E Energy Comments at 12.
\45\ AGL Resources Comments at 5.
---------------------------------------------------------------------------
46. Electric Power Supply Association (EPSA) argues that the
adoption of the SEC rules as a means of implementing PUHCA 2005 is
neither wise nor necessary or appropriate for the protection of utility
customers with respect to jurisdictional rates. According to EPSA, the
two statutory regimes are completely different and the PUHCA 1935
regulations are incompatible with the considerably more narrow scope of
PUHCA 2005, which the Commission itself notes is primarily a books and
records access statute and a statute that does not give the Commission
authority to pre-approve holding company activities.\46\ EPSA further
contends that the adoption of such rules would be contrary to Congress'
intent and exceed the authority granted to it under PUHCA 2005,
improperly and unnecessarily imposing PUHCA 1935-type regulation on all
PUHCA 2005 holding companies and their relevant affiliates, including a
large number of holding companies exempted from PUHCA 1935.\47\
Moreover, EPSA emphasizes that, while the Commission has the authority
to disallow a utility's recovery in its jurisdictional rates of
improper affiliate charges, the Commission does not have the authority
to regulate transactions among non-utility affiliates by requiring ``at
cost'' pricing, and, therefore, has no authority to impose financial
and complex accounting and reporting requirements to implement ``at
cost'' pricing.\48\
---------------------------------------------------------------------------
\46\ EPSA Comments at 6-7.
\47\ Id. at 7.
\48\ Id. at 10.
---------------------------------------------------------------------------
Commission Determination
47. We agree with the comments of APPA/NRECA and EEI that any SEC
regulations that the Commission adopts should be imported into and
integrated with the Commission's regulations, rather than, for example,
being incorporated by reference. However, the Commission does not find
it appropriate to incorporate all of the relevant SEC rules at this
time. Accordingly, the Commission will adopt in Part 366 of its
regulations certain provisions of 17 CFR parts 250 and 259, which are
discussed further below. We will not adopt the SEC Uniform System of
Accounts and record-retention rules in 17 CFR parts 256 and 257 into
the Commission's regulations at this time. Instead, the Commission will
initiate a separate rulemaking proceeding, which we intend to complete
well in advance of the January 1, 2007 deadline, to address how the
Commission's Uniform System of Accounts and record-retention rules in
parts 101, 125, 201, and 225 of its regulations can be modified to
adopt or otherwise integrate the relevant parts of the SEC's Uniform
System of Accounts and record-retention rules into the Commission's
regulations. As discussed above, unless otherwise exempted or granted a
waiver, both holding companies and service companies will be required
to comply with the Commission's record-retention requirements effective
January 1, 2007, but only traditional, centralized service companies
will be required to comply with the Commission's Uniform System of
Accounts. We will give holding companies registered under PUHCA 1935
and service companies within formerly-registered holding company
systems that currently follow the SEC's record-retention rules in 17
CFR part 257 the option to follow either the Commission's or the SEC's
record-retention rules, as they exist on the day before the effective
date of PUHCA 2005, for calendar year 2006. Similarly, traditional,
centralized service companies in formerly-registered holding company
systems that currently follow the SEC's Uniform System of Accounts in
17 CFR part 256 may follow either the SEC's or the Commission's Uniform
System of Accounts for calendar year 2006. But, as discussed above, these
entities must transition to the Commission's rules, by January 1, 2007.
48. We also agree with the comments of EEI that it is appropriate
to provide a reasonable transition period between the effective date of
this Final Rule and the date on which the initial filings will be due.
As discussed above, we will give traditional, centralized service
companies until January 1, 2007 to conform their accounts and records
to the requirements of the Commission's Uniform System of Accounts and
record-retention rules. Similarly, we
[[Page 75600]]
will give holding companies and service companies until January 1, 2007
to conform to the requirements of the Commission's record-retention rules.
49. However, as discussed below, this transition period will not
apply to the filing of FERC-65 (Notification of Holding Company
status). Accordingly, all persons that are holding companies within the
meaning of PUHCA 2005 on the effective date of PUHCA 2005 will be
required to file FERC-65 within 30 days of the effective date of PUHCA
2005 to inform the Commission of their holding company status (and by
the same date, holding companies seeking exemption or waiver must file
a separate FERC-65A (Exemption Notification) or FERC-65B (Waiver
Notification) to assert their claims that they qualify for the
statutory exemptions contained in section 1266(a) of EPAct 2005 or the
other exemptions and waivers adopted in this Final Rule). Any entities
that become holding companies after the effective date of PUHCA 2005
will be required to file FERC-65 no later than 30 days after becoming a
holding company. FERC-65 is in lieu of the NOPR proposal to adopt SEC
Form U-5A, but will contain a subset of the information that the
Commission originally proposed to be filed. FERC-65 will be an
information-only filing. We find that it is appropriate to impose this
notification requirement on all holding companies equally because it
will permit the Commission to identify the companies that may have
books and records relevant to jurisdictional responsibilities under the
FPA and the NGA. This notification requirement, moreover, will impose
only a de minimis burden.
50. We reject the recommendation of Georgia PSC that the Commission
retain all SEC regulations and ensure collection of the same
information as under PUHCA 1935. As we emphasized above, Congress
repealed PUHCA 1935 and nowhere in PUHCA 2005 did it give us the same
substantive regulatory authority that the SEC had under PUHCA 1935.
Accordingly, we will adopt only those SEC regulations that would be
consistent with Congress' intent in enacting PUHCA 2005, namely, those
that provide the Commission with access to books and records relevant
to the costs incurred by a public utility or natural gas company and
necessary or appropriate for the protection of public utility or
natural gas company customers with respect to jurisdictional rates.
51. With respect to FirstEnergy's request that we amend section
366.2(e), we note that we are not adopting this paragraph in the Final
Rule. Instead, to avoid ambiguity, we have imported the text of these
SEC regulations that the Commission is adopting, with appropriate
modifications, into part 366 of the Commission's regulations.
Furthermore, as explained above, we will not adopt into the
Commission's regulations the SEC's Uniform System of Accounts and
record-retention rules at this time. Instead, we will initiate a
separate rulemaking proceeding to address how the Commission's Uniform
System of Accounts and record-retention rules in parts 101, 125, 201,
and 225 of its regulations can be modified to adopt or otherwise
integrate the relevant parts of the SEC's Uniform System of Accounts
and record-retention rules.
52. We reject the contention submitted by EPSA and others that the
Commission lacks the authority under PUHCA 2005 to adopt SEC
regulations (or versions thereof) and that doing so is contrary to
Congress' intent in repealing PUHCA 1935. The accounting, record-
retention and filing requirements adopted herein impose no substantive
restrictions and prior approval requirements such as those contained in
PUHCA 1935. Moreover, sections 1264(a) and 1264(b) of EPAct 2005
expressly require each holding company and each associate company,
affiliate or subsidiary thereof to ``maintain'' and ``make available''
books and records as the Commission determines are relevant to costs
incurred by a public utility or natural gas company and necessary or
appropriate for the protection of utility customers with respect to
jurisdictional rates. In turn, section 1272(1) of EPAct 2005 directs
the Commission to issue such regulations as may be necessary or
appropriate to implement PUHCA 2005, including section 1264. In
addition, section 1270 of EPAct 2005 states that that the Commission
shall have the same powers as set forth in sections 306 through 317 of
the FPA to enforce the provisions of PUHCA 2005. In this regard, we
note that section 309 of the FPA grants the Commission the power to
perform any and all acts and to prescribe by order, rule or regulation,
as it may find necessary or appropriate to carry out the provisions of
the FPA, ``the form of all statements, declarations, applications, and
reports to be filed with the Commission.'' \49\ PUHCA 2005 did not
specify the manner in which books and records are to be made available
to the Commission, and, in the face of statutory silence on this
specific issue and the clear statements in sections 1272 and 1270 of
EPAct 2005, we find that Congress has granted the Commission the
discretion to prescribe the manner in which these entities are to
``make available'' their books and records to the Commission and ``the
form or forms of all statements, declarations, applications, and
reports to be filed with the Commission.''
---------------------------------------------------------------------------
\49\ 16 U.S.C. 825h (2000); accord 15 U.S.C. 717o (2000).
---------------------------------------------------------------------------
53. For the same reasons, we similarly reject the argument
submitted by AGL Resources, who notes that the SEC was empowered to
require the filing of reports by section 14 of PUHCA 1935, which has
been repealed, and concludes from the fact that Congress has not
enacted an identically-worded provision in PUHCA 2005 that the
Commission lacks the authority to require entities to file any reports
under PUHCA 2005. AGL Resources' interpretation appears to rest on the
erroneous assumption that, by using the terms ``maintain'' and ``make
available,'' Congress necessarily meant that entities were only
required to make these books and records available to the Commission on
the entities' premises, rather than in the form of a report filed with
the Commission. Had Congress meant to restrict the Commission's access
to books and records in this manner, it clearly could have done so, as
it did with respect to state commissions under section 1265; section
1265 provides that entities are to ``produce for inspection'' ``upon *
* * written request'' of a state commission a much more limited range
of documents. Here, in section 1264 (and sections 1272 and 1270),
Congress chose not to adopt such a restriction.
54. Finally, we note that, where appropriate, we have removed from
the SEC regulations adopted herein all references to PUHCA 1935 and
related SEC regulations and, where appropriate, replaced them with
references to PUHCA 2005 or to the relevant Commission regulations.
Therefore, we will not further address in this Final Rule the various
comments received suggesting that we remove such references.
c. Comments on Particular SEC Regulations
17 CFR 250.1 and 259.5A (Form U-5A)
Comments
55. SEC Form U-5A requires each non-exempt holding company to
submit a complete list of corporate affiliates and brief description of
the kind of business each affiliate transacts. APPA/NRECA support the
adoption of 17 CFR 250.1, which will require each public utility
holding company to inform the Commission of its status. As to
exemptions, APPA/NRECA argue that the Commission should distinguish
[[Page 75601]]
between the exemption available under section 1266(a) (for QFs, EWGs
and FUCOs) and 1266(b) (for persons and classes of transactions ``not
relevant to the jurisdictional rates of a public utility or natural gas
company''), so that the notification the Commission requests would be
limited to section 1266(a). According to APPA/NRECA, the ``relevance''
exemption of section 1266(b) requires more Commission attention, in the
form of general standards to be applied case by case.\50\
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\50\ APPA/NRECA Comments at 24.
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56. Energy East Corporation (Energy East) opposes the adoption of
this section because it contends that the notification requirement is
inconsistent with the statement in the NOPR indicating that the
Commission does not intend to reimpose the registration requirement.
Energy East states that the Commission could simply instead rely on
disclosure in FERC Forms 1 and 2 which require a public utility or
natural gas company to state the name of any controlling corporation,
the manner in which control is held and the extent of control.\51\
Similarly, Dominion Resources, Inc. (Dominion) and EEI state that the
Commission's intention to not reimpose the registration requirement is
inconsistent with the adoption of the three filing requirements set
forth in section 250.1 (i.e., SEC Forms U-5A, U-5B, and U-5S).\52\
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\51\ Energy East Comments at 4.
\52\ Dominion Comments at 11-12, EEI Comments at 16.
---------------------------------------------------------------------------
57. Dominion agrees with retention of the Form U-5A filing
requirement because this form is considerably less burdensome than
either Form U-5B or U-5S. Dominion also suggests that this form be
revised to provide for a claim of exemption under section 1266 of EPAct
2005.\53\ Scottish Power PLC (Scottish Power) also supports the
retention of Form U-5A and suggests that the Commission consider adding
a component to the Form U-5A to allow a holding company to make a claim
for an exemption from the books and records requirements of section
1264.\54\
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\53\ Dominion Comments at 12.
\54\ Scottish Power Comments at 4.
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Commission Determination
58. The Commission will adopt in section 366.4(a) of its
regulations a provision analogous to that contained in paragraph (a) of
17 CFR 250.1. However, the Commission will not require holding
companies to submit a Commission-adopted version of SEC Form U-5A and
will instead require persons that are holding companies on the
effective date of PUHCA 2005 to submit FERC-65 (Notification of Holding
Company status) and, for companies seeking exemption or waiver, FERC-
65A (Exemption Notification) or FERC-65B (Waiver Notification) within
30 days of the effective date of PUHCA 2005, February 8, 2006.
Furthermore, any entity that becomes a holding company after the
effective date of PUHCA 2005 must submit FERC-65 (and, if appropriate,
FERC-65A or FERC-65B) within 30 days of the date on which such entity
becomes a holding company. This filing will be for informational
purposes and will not be noticed in the Federal Register, but will be
available on the Commission's website.
59. As discussed above, entities seeking exemption or waiver may do
so by filing FERC-65A or FERC-65B, along with their FERC-65. All
notifications of exemption or waiver submitted on FERC-65A and FERC-65B
will be noticed in the Federal Register.
60. However, we will limit the use of FERC-65A and FERC-65B to
those persons who claim that they qualify for one of the mandatory
statutory exemptions in section 1266(a) (i.e., that they are a holding
company solely with respect to one or more EWGs, FUCOs, or QFs) or for
one of the class exemptions or waivers that the Commission adopts in
this Final Rule, which are listed in section 366.3(b) and (c) of the
Commission's regulations, or in subsequent rules or orders. Persons
will be considered to have a temporary exemption or waiver upon a good
faith filing of FERC-65A or FERC-65B and the exemption or waiver will
be deemed granted after 60 days from the date of the filing, absent
Commission action to the contrary before that date. The Office of the
Secretary will periodically issue a notice listing the persons whose
notifications of exemption or waiver have gone into effect by operation
of the Commission's regulations, i.e., in the absence of Commission
action to the contrary within 60 days after the date of filing.
61. Persons seeking any other type of exemption or waiver must file
a petition for declaratory order pursuant to section 385.207(a) of the
Commission's regulations, as required by section 366.3(d) of the
regulations adopted herein. These petitions for declaratory order will
be noticed in the Federal Register and no temporary exemption or waiver
will attach. Such requests for exemptions or waivers will be considered
case-by-case and deemed granted only upon order of the Commission.
62. We reject the assertion of Energy East and others that the
adoption of a Commission analogue to 17 CFR 250.1(a) (i.e., the SEC's
registration requirement) is tantamount to re-imposing the registration
requirement under PUHCA 1935. First and foremost, the Commission in the
NOPR proposed to use a version of the SEC Form U-5A as a notification
requirement, not as a registration requirement. Moreover, in this Final
Rule, we are not adopting the proposal in the NOPR to require
submission of SEC Form U-5A and instead using what is called FERC-65
(Notification of Holding Company Status). This notification requirement
simply requires persons that are holding companies to inform the
Commission of their status as such and thus that they are subject to
the Commission's access to books and records under PUHCA 2005. As
commenters have noted, the registration system established by PUHCA
1935 was part of a pervasive regulatory regime addressing virtually all
aspects of a registered holding company's and its subsidiaries'
financial and corporate activities, while PUHCA 2005 is a narrower
statute intended to give the Commission access to books and records
relevant to costs incurred by a public utility or natural gas company
and necessary or appropriate for the protection of utility customers
with respect to jurisdictional rates. For the Commission to carry out
its jurisdictional rate responsibilities, it must be able to identify
the entities that are holding companies of jurisdictional public
utilities or natural gas companies. The requirement to notify the
Commission facilitates our ability to do so and is thus consistent with
Congress' intent in enacting PUHCA 2005, and, in any event, is hardly
burdensome.
17 CFR 250.26
Comments
63. 17 CFR 250.26 directs registered holding companies and their
subsidiaries to comply with a number of SEC accounting and record-
keeping rules, including Regulation S-X, the equity accounting method,
and the record-retention rules in 17 CFR Part 257. E.ON and LG&E Energy
assert that section 250.26(c), which requires holding companies to use
the equity method of accounting for investments in subsidiaries, is
outside the jurisdiction of the Commission under section 1264 of EPAct
2005 and should not be adopted by the Commission.\55\ Dominion and EEI
argue that section 250.26(b), which deals with information to be
supplied with Form U-5S, should
[[Page 75602]]
be deleted and that sections 250.26(c) and (g) should not be adopted by
the Commission. Moreover, EEI and Dominion argue that, rather than
adopting section 250.26(d), which mandates the use of SEC record-
retention policy, holding companies should have the option of following
either SEC or Commission document retention requirements.\56\ EPSA
states that 17 CFR 250.26 pertains to financial recordkeeping
requirements that would conflict with accounting and reporting
requirements that many non-registered holding company systems are not
currently required to follow, i.e., Regulation S-X. Moreover, EPSA
notes that Rule 250.26 prohibits any company in a registered holding
company system to declare or pay dividends or reacquire its securities
absent SEC approval under section 12 of PUHCA 1935.\57\ Finally, Energy
East opposes the adoption of this rule because all top-tier registered
holding companies are public issuers and most large holding companies
subject to PUHCA 2005 are likely to be public issuers and are thus
already required to prepare financial statements in accordance with
Regulation S-X, unless exempted by other SEC rules or form
instructions.\58\
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\55\ E.ON/LG&E Energy Comments at 16.
\56\ Dominion Comments at 12, EEI Comments at 17. See also
Southern Company Services, Inc. (Southern Company Services) Comments at 5.
\57\ EPSA Comments at 11.
\58\ Energy East Comments at 7.
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Commission Determination
64. With respect to the concerns expressed by E.ON and LG&E Energy
on the use of the equity method of accounting for investments in
subsidiaries and Energy East and EPSA regarding SEC Regulation S-X, the
Commission is not adopting paragraph (a)(1) of 17 CFR 250.26 (a)(1),
which mandates compliance with this SEC Regulation S-X, or paragraph
(c), which mandates use of the equity method of accounting. In
addition, the Commission is not adopting paragraph (b), which requires
certain information to be supplied with the Form U-5S, or paragraph
(g), which is a cross reference to 17 CFR 250.26. Also, as recommended
by Dominion and EEI, the Commission will not adopt paragraph (d)
regarding the SEC rules on record retention in 17 CFR Part 257.
Instead, as discussed above, we will permit holding companies
registered under PUHCA 1935 and service companies within such holding
company systems that currently follow the SEC's record-retention rules
in 17 CFR Part 257 to follow either the Commission's or the SEC's
record-retention rules, as they exist on the day before the effective
date of PUHCA 2005, for calendar year 2006. These entities must
transition to the Commission's rules by January 1, 2007.
17 CFR 250.27
Comments
65. 17 CFR 250.27 requires registered holding companies and public-
utility company subsidiaries thereof that are not subject to the
Commission's or a state commission's system of accounts to conform to a
classification of accounts prescribed by the Commission. If the public-
utility company subsidiary is a gas utility company, it must conform to
the system of accounts recommended by NARUC. According to Dominion and
EEI, it is questionable whether this rule currently applies to any
companies and whether there are any public utility companies under
PUHCA 1935 that would not be subject to the Commission's Uniform System
of Accounts or the requirements of a state utility commission. In
addition, Dominion and EEI assert that section 250.27 is potentially
inconsistent with the waiver of Part 101 of the Commission's
regulations commonly received in connection with an authorization to
sell power at market-based rates because this section would subject to
Part 101 any public utility under the FPA that is not required to
comply with it.\59\
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\59\ Dominion Comments at 12-13, EEI Comments at 18.
---------------------------------------------------------------------------
66. APPA/NRECA oppose the adoption of this section because it does
not seem to add anything presently required by the Commission's Uniform
System of Accounts.\60\ Finally, Energy East opposes the adoption of
this section as unnecessary because there is no evidence that utilities
subject to the Commission's ratemaking jurisdiction lack a uniform
system of accounting standards.\61\
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\60\ APPA/NRECA Comments at 25.
\61\ Energy East Comments at 9.
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Commission Determination
67. We agree with commenters that this provision should not be
adopted as part of the Commission's regulations because it does not add
anything to the Commission's Uniform System of Accounts. All public
utilities and natural gas companies, except those that have been
granted waiver of the Commission's accounting, record-retention, and
reporting requirements (e.g., power marketers), already maintain their
books and records in accordance with the Commission's Uniform System of
Accounts in Parts 101 and 201 of its regulations.
17 CFR 250.80
Comments
68. Section 250.80 defines the terms ``construction,'' ``goods,''
and ``services,'' as used in the SEC regulations under PUHCA 1935.
APPA/NRECA support the adoption of section 250.80, but suggest that the
Commission should import the definitions of ``service,'' ``goods,'' and
``construction'' in this section into its own rules.\62\ EEI and
Dominion also support the adoption of this section.\63\ E.ON and LG&E
Energy also endorse the Commission's proposal to adopt section
250.80.\64\
---------------------------------------------------------------------------
\62\ APPA/NRECA Comments at 25-26.
\63\ Dominion Comments at 13, EEI Comments at 18.
\64\ E.ON/LG&E Energy Comments at 14.
---------------------------------------------------------------------------
Commission Determination
69. We agree with APPA/NRECA and other commenters, and as these
terms and their definitions are relevant under PUHCA 2005, we will
adopt the definitions contained in 17 CFR 250.80 in section 366.1 of
the Commission's regulations and thereby import the SEC's definitions
of these terms for the purposes of PUHCA 2005. In addition, we will
remove references to PUHCA 1935, where appropriate, as we have done
with the other regulations adopted in this final rule.
17 CFR 250.93 and 17 CFR Parts 256 and 257
Comments
70. Section 250.93 requires service companies to adopt the SEC's
Uniform System of Accounts in 17 CFR Part 256 and its record-retention
rules in 17 CFR Part 257. Some commenters opposed the adoption of these
SEC regulations, while others supported their adoption or suggested
various ways in which their application could be limited, in
particular, by allowing holding companies and service companies to
adopt the Commission's Uniform System of Accounts in Part 101 of its
regulations and its record-retention rules under Part 125 of its
regulations.\65\
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\65\ But see APPA/NRECA Comments at 25-26.
---------------------------------------------------------------------------
71. Dominion and EEI agree with the Commission's proposal to adopt
the SEC's Uniform System of Accounts. However, they state this system
of accounts closely tracks the requirements of SEC Form U-13-60 and
therefore includes a number of components that no longer will be
relevant following repeal of PUHCA 1935. They thus recommend that the
Commission adopt only those portions of 17 CFR Part 256 that correspond
to the information it
[[Page 75603]]
recommends be included with SEC Form U-13-60.\66\
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\66\ Dominion Comments at 16, EEI Comments at 20.
---------------------------------------------------------------------------
72. Dominion and EEI also argue that holding company service
companies should have the option of adopting the Commission's Uniform
System of Accounts and record-retention rules instead of the SEC's.
They further contend that there is no reason that any company that
currently follows the Commission's record-retention regulations should
be required to adopt those found in 17 CFR part 257 and that the
Commission could reconcile the differences between the two sets of
requirements in a subsequent rulemaking.\67\
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\67\ Dominion Comments at 16-17, EEI Comments at 20-21.
According to Dominion and EEI, to the extent the coverage of the SEC
requirements is broader than the Commission's, the additional
requirements relate largely to securities matters that are no longer
relevant under PUHCA 2005.
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73. Entergy encourages the Commission to consider limiting the
applicability of these requirements to service companies and, in the
case of the record-retention requirements imposed under 17 CFR part
257, limiting the scope of these requirements to information that bears
a direct relationship to costs incurred by service companies or other
associate companies whose costs are reflected in the jurisdictional
rates or charges of public utilities.\68\
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\68\ Entergy Comments at 6.
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74. Energy East also opposes the adoption of 17 CFR part 257
because, it contends, some of the SEC's records retention requirements
are outdated, particularly as to the storage media specified, given
information storage and retrieval technologies that are now available
and in common use. The Commission's rules are more flexible because a
public utility or licensee may select its own storage media subject to
conditions related to life expectancy and internal control procedures
to assure data reliability. Energy East thus urges the Commission to
expand its Part 125 rules, making them applicable to public utilities,
service companies, and holding companies.\69\
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\69\ Energy East Comments at 9.
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75. Finally, APPA/NRECA suggest that the Commission adjust the
requirements of the SEC's Uniform System of Accounts to make them
consistent with the Commission's Uniform System of Accounts under the
FPA applicable to public utilities.\70\
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\70\ APPA/NRECA Comments at 25.
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Commission Determination
76. As discussed above, the requirements of section 1264 of EPAct
2005 to maintain and make available books and records apply equally to
all holding companies and affiliates, associate companies, and
subsidiaries thereof, regardless of their registered or exempt status
under PUHCA 1935, absent a prospective exemption or waiver.
Nevertheless, the Commission recognizes the long-standing differences
in the treatment of these classes of entities under PUHCA 1935 and SEC
regulations, namely, that companies in formerly-registered holding
companies systems were subject to PUHCA 1935 and the SEC's accounting
and other regulations thereunder, while companies in formerly-exempt
holding company systems were not. We will therefore provide all holding
companies and service companies with a reasonable period of time to
transition to the Commission's regulations under PUHCA 2005.
Specifically, all traditional, centralized service companies that do
not currently follow the Commission's Uniform System of Accounts (Parts
101 and 201) will have until January 1, 2007 to comply with the
Commission's Uniform System of Accounts, and all holding companies and
service companies that do not currently follow the Commission's record-
retention requirements (Parts 125 and 225) will have until January 1,
2007 to comply with the Commission's record-retention requirements.
Furthermore, traditional, centralized service companies within
registered holding company systems that currently follow the SEC's
Uniform System of Accounts in 17 CFR part 256 have the option to follow
either the Commission's or the SEC's Uniform System of Accounts, as
they exist on the day before the effective date of PUHCA 2005, for
calendar year 2006. Similarly, all holding companies and service
companies within registered holding company systems that currently
follow the SEC's record-retention rules in 17 CFR part 257 have the
option to follow either the Commission's or the SEC's record-retention
requirements, as they exist on the day before the effective date of
PUHCA 2005, for calendar year 2006. But, as discussed above, these
entities must transition to the Commission's rules by January 1, 2007.
77. However, traditional, centralized service companies following
the Commission's Uniform System of Accounts must also comply with the
General Instructions and other requirements contained in the SEC's
Uniform System of Accounts. These instructions and requirements pertain
specifically to service company accounts and are not, at present,
adequately addressed in the Commission's Uniform System of Accounts.
17 CFR 250.94 and 259.313 (Form U-13-60)
Comments
78. Service companies are required by 17 CFR 250.94 and 259.313 to
file SEC Form U-13-60, which is the annual report for service companies
in registered holding company systems. It requires the submission of
the service company's financial statements for each calendar year
prepared using the SEC's Uniform System of Accounts. It also contains
certain supporting schedules providing a more detailed analysis of
amounts recorded in individual accounts, an analysis of billings to
associated and non-associated companies, expense distribution by
service company department, and an accompanying statement of methods of
cost allocation.
79. Several commenters support the adoption of 17 CFR 250.94 and
259.313. APPA/NRECA support the retention of 17 CFR 250.94 and Form U-
13-60.\71\ Energy East states that it is beneficial to have one form of
service company report that could be filed with the Commission and
state commissions that require affiliate transactions reporting and
thus supports the proposed SEC Form U-13-60 filing requirement, with
which the states are already familiar. Energy East further recommends
that the Commission focus the requirements of Form U-13-60, as
recommended by EEI, on the information that is most relevant to
allocations of costs.\72\
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\71\ APPA/NRECA Comments at 25-26.
\72\ Energy East Comments at 10.
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80. Dominion and EEI also note that the current Form U-13-60
requires companies to file a substantial amount of information that is
not relevant to the Commission's duties under PUHCA 2005. EEI therefore
proposes that the balance sheet and income statement portions of the
Form U-13-60 be retained, but that a number of accounts and schedules
not relevant to cost-allocation issues be eliminated, as these accounts
and schedules in question are extremely time consuming to prepare and
in some cases require invoice level detail to complete, and EEI offers
suggestions as to accounts and schedules that should be modified.\73\
Finally, EEI requests that the Commission clarify that the form applies
to system service companies and provide a definition of ``service
company'' in section 366.1 that tracks the language in section 1275(b) of
[[Page 75604]]
PUHCA 2005, i.e., ``a company organized specifically for the purpose of
providing non-power goods and services to any public utility in the
same holding company system.'' \74\
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\73\ Id.
\74\ Dominion Comments at 14, EEI Comments at 19.
---------------------------------------------------------------------------
81. E.ON and LG&E Energy contend that the implementation of section
250.94 and Form U-13-60 is beyond the scope of the jurisdiction granted
to the Commission in section 1275 of EPAct 2005, which is much more
limited than that granted to the SEC to authorize the organization and
conduct of service companies under section 13 of PUHCA 1935. They
suggest that, if it is nonetheless appropriate for the Commission in
its administration of PUHCA 2005 to impose reporting requirements under
the FPA, the nature and extent of such reports should be limited to
those matters over which the Commission is granted jurisdiction. They
further contend that Form U-13-60 largely contains information which is
not relevant to the jurisdiction of the Commission and propose that the
Commission should instead require that FERC Form 1 be supplemented to
include the following information: (i) Annual filing of cost-allocation
methodology used by the service company to allocate costs; (ii) annual
filing of statement of receivables from and payables to associated
companies, identified by associate company name; and (iii) annual
filing of all charges received by associate companies from a services
company, identified by associate company and by FERC account.\75\
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\75\ E.ON/LG&E Energy Comments at 15-16. See also Entery Comments at 6.
---------------------------------------------------------------------------
Commission Determination
82. Based on the comments received, the Commission has decided not
to adopt SEC Form U-13-60, and the Commission will instead require
traditional, centralized service companies to file their annual reports
on FERC Form No. 60, attached as Appendix 2, which is based on a
streamlined version of SEC Form U-13-60. FERC Form No. 60 substantially
reduces the amount of information required by SEC Form U-13-60 by
deleting certain schedules not necessary to fulfill our jurisdictional
responsibilities. Section 366.23 of the Commission's regulations, which
are based on 17 CFR 250.94 and 259.313, will thus require all
traditional, centralized service companies to file with the Commission
FERC Form No. 60 by May 1 of the year following the calendar year that
is the subject of the report. Traditional, centralized service
companies in formerly-registered holding company systems must submit
their first FERC Form No. 60, for calendar year 2005, by May 1, 2006,
while traditional, centralized service companies in formerly-exempt
holding company systems will have until May 1, 2008, to submit their
first annual report, for calendar year 2007, on FERC Form No. 60.
83. SEC Form U-13-60 contains a set of financial statements for
service companies, detailed supporting schedules, organizational
charts, a list of cost-allocation methods they use, and other
information. Prior to the repeal of PUHCA 1935, the companies to which
these reporting requirements applied were entities formed specifically
for the purpose of providing non-power goods and services to a public-
utility company, as defined in section 366.1 of the Commission's
regulations, of a holding company system. In 17 CFR 250.80, the SEC
defined the type of specialized services that these traditional,
centralized service companies provided to public-utility companies
within their holding company systems, and we have taken over this
definition in section 366.1 of our regulations.\76\ With the repeal of
PUHCA 1935 and its associated rules on cross-subsidization,
diversification, and requirements to obtain SEC approval for affiliate
transactions and the formation of service companies, these traditional,
centralized service companies may increasingly provide centralized
services not only for public utility affiliates, but also for non-
utility affiliates of financial institutions or other industrial
conglomerates, increasing the opportunity for cross-subsidization.
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\76\ Section 366.1 defines these ``services'' as ``any
managerial, financial, legal, engineering, purchasing, marketing,
auditing, statistical, advertising, publicity, tax, research, or any
other service (including supervision or negotiation of construction or of
sales), information or data, which is sold or furnished for a charge.''
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84. The annual financial reporting requirement for service
companies in FERC Form No. 60, which is based on a truncated version of
SEC Form U-13-60, will provide transparency and will enable the
Commission and others to better monitor for cross-subsidization. Such
information will aid the Commission in carrying out its statutory
duties in a number of contexts, including in its assessment of whether
a given disposition of jurisdictional facilities under section 203 of
the FPA will result in cross-subsidization, in its ratemaking under
sections 205 and 206 of the FPA and sections 4 and 5 of the NGA, and in
its review and approval of cost-allocations under section 1275 of EPAct
2005. The accounting, record-retention, and reporting rules for service
companies that we are adopting in this Final Rule are a measured
response to the need for information about service company costs and
functions necessary for the Commission to carry out its statutory
responsibilities. Finally, in response to EEI's request that the
Commission provide a definition of service company that tracks the
language in section 1275(b), we note that we have added a definition of
service company in section 366.1 of the Commission's regulations.
85. While we believe an annual reporting requirement for service
companies is an important tool to aid the Commission in carrying out
its responsibilities under the FPA and NGA, and its review of cost
allocations requested under section 1275 of PUHCA 2005, as noted above,
we have considered the comments received regarding the current content
of SEC Form U-13-60 and concluded that some, but not all,
recommendations for modifications and deletions of certain schedules
should be adopted. Specifically, there are a number of schedules
currently contained in the SEC Form U-13-60 that provide a greater
level of detail for some items than the Commission will require in FERC
Form No. 60 to carry out its statutory responsibilities. Therefore, we
will not carry over from SEC Form U-13-60 to FERC Form No. 60 the
requirement to submit supporting schedules for Outside Services
Employed, Employee Pensions and Benefits, General Advertising Expenses,
Rents, Taxes Other than Income Taxes, Donations, and Other Deductions.
86. We will not, however, adopt EEI's request to delete Schedule
XIII--Current and Accrued Liabilities. This schedule contains
information about the outstanding balances of accounts and notes
payable to associated companies. We consider this information to be
integral to understanding inter-company transactions and cost
allocations within the holding company system.
87. We also will not adopt requests to modify or delete the
Schedule of Expense by Department or Service Function or the
Departmental Analysis of Salaries. This information is relevant to
affiliate costs recovered in jurisdictional rates. Section 1275(b) of
EPAct 2005 specifically requires the Commission in certain
circumstances to review and authorize the allocation of costs for non-
power goods or services provided by service companies to public
utilities within the same holding
[[Page 75605]]
company system. The determination of proper cost allocation requires
knowledge of the total costs and how they are distributed within the
holding company system, particularly to the jurisdictional entity(ies).
The submission of the information in this schedule will facilitate the
Commission's understanding of cost allocations within the holding
company system.\77\ The Departmental Analysis of Salaries shows how
salary expenses are allocated to each parent company, associate
company, and non-associate company based on the department or service
function allocation methods. This schedule is a tool to determine
whether cost allocations are being made in accordance with the
authorized methods of cost allocation and whether inappropriate cross-
subsidization has occurred. The Schedule of Expense by Department or
Service Function similarly promotes this end.
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\77\ As discussed elsewhere in this Final Rule, although we have
the authority to require the filing of cost allocation agreements
pursuant to our ratemaking authority under sections 4 and 5 of the
NGA and sections 205 and 206 of the FPA, we will not do so because
the Commission believes that the submission of relevant cost-
allocation information on FERC Form No. 60 provides a less
burdensome method for collecting this information, for both services
companies and the Commission.
---------------------------------------------------------------------------
88. Finally, the Commission will not adopt EEI's recommendation to
delete the supporting schedule for Account 930.2, Miscellaneous General
Expenses. Account 930.2 is a catch-all account for recording expenses
not provided for elsewhere. A single-sum total for this account simply
does not provide sufficient information about the nature of the items
included in the account or the associated amounts for each item. The
additional disclosure that this schedule provides therefore remains
important for understanding service company costs and functions.
Additionally, we note that a similar schedule is required for the FERC
Form No. 1 submitted by public utilities.
17 CFR 259.5S (Form U-5S)
Comments
89. SEC Form U-5S is the annual report registered holding companies
must submit, which includes information about the company's corporate
structure, board of directors, acquisitions or sales of utility assets,
securities transactions, investments in companies outside the holding
company family, political contributions, contracts between the service
company and utility affiliates; relations between the holding company
and any EWG or FUCO, and a copy of the company's yearly financial reports.
90. APPA/NRECA support the retention of Form U-5S.\78\ Georgia PSC
also supports the adoption of this reporting requirement, and suggests
that the Commission should add cash flow statements to the Financial
Statement and Exhibits section of Form U-5S.\79\
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\78\ APPA/NRECA Comments at 25-26.
\79\ Georgia PSC Comments at 2.
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91. The majority of commenters, however, oppose the adoption of
Form U-5S. EEI argues that the Form U-5S filing requirement should not
be adopted because it imposes burdensome and duplicative information
collection requirements. EEI states that, although the Office of
Management and Budget estimates that companies need approximately 13
hours to complete Form U-5S, in the experience of EEI's registered
holding company members this form requires hundreds of hours to
complete and as a result imposes millions of dollars in costs on
ratepayers and shareholders. Much of the information required by Form
U-5S is contained in other public filings, including the Commission's
Form 1 and 3Q and the quarterly and annual reports that companies file
with the SEC on Forms 10-Q and 10-K. Other information included in the
Form U-5S relates to matters that repeal of PUHCA 1935 has made
irrelevant and that holding companies no longer should be required to
file.\80\
---------------------------------------------------------------------------
\80\ EEI Comments at 5. See also E.ON/LG&E Energy Comments at
14, PacifiCorp Comments at 5, Progress Energy Comments at 5.
---------------------------------------------------------------------------
92. Similarly, AGL Resources and Emera Incorporated (Emera) argue
that the information solicited by this SEC form is generally irrelevant
to the Commission's ratemaking jurisdiction. They further contend that
the Commission already obtains the information that it needs to
regulate public utilities and natural gas companies on FERC Forms 1 and
2 and that the Commission's need for holding company-level information
can be satisfied by reviewing regular SEC reports on Forms 10-K, 10-Q
and 8-K, and by soliciting targeted information on a case-by-case basis
should particular issues arise. Finally, they argue that the Commission
should delay the imposition of additional reporting requirements until
it has had sufficient time to evaluate the extent of its information
needs.\81\
---------------------------------------------------------------------------
\81\ AGL Resources Comments at 4, Emera Comments at 10.
---------------------------------------------------------------------------
93. FirstEnergy suggests that, to the extent that the Commission
desires to utilize information contained in those forms, it should
modify those forms so that the only information required to be
maintained is information that is deemed to be necessary or appropriate
for the protection of utility customers with respect to jurisdictional
rates. The Commission should also provide a clear explanation of why
each category of information that is to be maintained is within the
statutory limits.\82\ Finally, FirstEnergy notes that Item 10 of Form
U-5S contemplates that the annual report for each holding company
system include consolidating financial statements for the parent
holding company and each of its subsidiaries for the year of the
report, and will be accompanied by the opinion of the independent
accountants as to the consolidated financial statements. This
requirement for an accountant's opinion imposes additional costs of
obtaining an opinion of the independent accountants with respect to the
consolidated financial statements. Because the financial statements of
the individual subsidiaries would have been audited and opinions
prepared in anticipation of development of consolidated financial
statements, this need for an additional opinion with respect to the
consolidated financial statements is not necessary and should be
eliminated.\83\
---------------------------------------------------------------------------
\82\ FirstEnergy Comments at 5-6.
\83\ Id. at 7. See also Emera Comments at 10.
---------------------------------------------------------------------------
94. Entergy submits that the proposed implementation of the
comprehensive reporting requirements of the Form U-5S is unduly
burdensome and unnecessary for the Commission to prevent cross-
subsidization or otherwise to achieve purposes within the scope of its
jurisdiction. Entergy asserts that, at a minimum, the Commission should
at least review the individual items in the rules and SEC Forms and
determine what, if any, additional information is really necessary for
it to discharge its statutory obligations under PUHCA 2005 or the FPA.\84\
---------------------------------------------------------------------------
\84\ Entergy Comments at 6.
---------------------------------------------------------------------------
Commission Determination
95. We will not require entities that are holding companies under
PUHCA 2005 to continue to file SEC Form U-5S. We agree with commenters
that the information in this form is available in other Commission or
SEC filings and/or is not relevant to costs incurred by jurisdictional
entities and is not necessary or appropriate for the protection of
utility customers with respect to jurisdictional rates.
d. Other Issues Concerning Adoption of SEC Regulations
Comments
96. NARUC submits that the Commission should retain the reporting
requirement set forth in 17 CFR
[[Page 75606]]
250.58(c), Quarterly Report on Form U-9C-3 because this form contains
information that is not reflected in the Annual Report on Form U-13-
60.\85\ FPL Group, Inc. (FPL Group) suggests that the Commission adopt
a simplified annual filing requirement based solely on Part 3 of Form
U-3A-2, which requires the submission of certain quantifiable factors
upon which the exemption is based. Other provisions in Form U-3A-2
should not be adopted, as they are redundant to other required filings
under the books and records provisions (to which exempt holding
companies previously were not subject), or would not assist the
Commission in making the PUHCA 2005 exemption determination.\86\
PacifiCorp and Scottish Power argue that the Commission should not
adopt any rules similar to that of 17 CFR 250.24 which require holding
companies and their subsidiaries to file certificates of notifications
regarding terms and conditions to declarations and order issued by the
SEC prior to the enactment of PUHCA 2005.\87\
---------------------------------------------------------------------------
\85\ NARUC Comments at 2.
\86\ FPL Group Comments at 4.
\87\ PacifiCorp Comments at 6, Scottish Power Comments at 6.
---------------------------------------------------------------------------
97. Detroit Edison requests that the Commission narrow the scope of
the rule by clarifying that the Commission will not require any holding
company (or its associate companies) to maintain books, records or
memoranda that are not used in preparing quarterly and annual filings
for the Commission.\88\
---------------------------------------------------------------------------
\88\ Detroit Edison Comments at 6.
---------------------------------------------------------------------------
Commission Determination
98. The FERC-65 (Notification of Holding Company Status) and FERC
Form No. 60 (Service Company Report) adopted above will provide us with
information to carry out our statutory rate responsibilities under
PUHCA 2005. It is neither necessary nor appropriate to require the
submission of additional forms at this time, though, in light of the
first year's submissions, the comments received at the technical
conference within the next year, and our day-to-day experience in
implementing PUHCA 2005, we do not foreclose the possibility that
additional filing requirements will later be found necessary.
99. With respect to PacifiCorp and Scottish Power's concerns, we
will not adopt 17 CFR 250.24. However, as discussed below with respect
to previously authorized activities, we have concluded that filings
directed by prior SEC financing authorizations should continue to be
made, but should now be made with the Commission.
100. We will not grant Detroit Edison's requested clarification
that the Commission will not require any holding company (or its
associate companies) to maintain books and records that are not used in
preparing quarterly and annual filings for the Commission. The
clarification Detroit Edison requests could produce loopholes in
holding company obligations to maintain and make available to the
Commission their books and records in sufficient detail to permit
examination, audit, and verification of the financial statements,
schedules, and reports they are required to file with the Commission or
that are issued to shareholders, as required by sections 366.21 and
366.22. For example, we will not carry over from SEC Form U-13-60 to
FERC Form No. 60 the requirement to submit a schedule that provides a
more detailed breakdown of outside services, but the removal of this
schedule does not relieve the traditional, centralized service company
of its obligation to provide this information upon request by the
Commission. If we were to adopt Detroit Edison's suggested clarifying
language, the traditional, centralized service company (which is an
associate company within the holding company system) could argue that
it does not have to provide the requested information because it was
not kept as it was not necessary to complete FERC Form No. 60.
e. Other Comments on the NOPR
Definition of ``Relevance''
Comments
101. Several commenters urge the Commission to clarify its standard
for relevance under section 1264.\89\ For example, APPA/NRECA propose
that the Commission should consider the books and records relating to a
corporate relationship or transaction, and the parties thereto, are
``relevant'' if there is a reasonable possibility that the arrangement
will affect a public utility affiliate in any material way, including
increasing its costs; adversely impacting it financial rating or access
to capital; diminishing its sales opportunities; or adversely affecting
operations, planning or maintaining activities.\90\
---------------------------------------------------------------------------
\89\ Arkansas PSC Comments at 8-11, Black Hills Comments at 2-3,
National Association of State Consumer Advocates (NASUCA) Comments
at 7, Missouri PSC Comments at 16-18.
\90\ APPA/NRECA Comments at 19. According to APPA/NRECA, the
following new corporate relationships and transactions are of
relevance to the Commission: (i) ownership by a holding company of
public utilities having no operational integration with each other;
(ii) ownership by multi-state holding companies (or their public
utility affiliates) of non-utility businesses having no functional
relationship to the public utility businesses; (iii) ownership of
multiple public utility companies by non-utility ventures; (iv)
financings by multi-state public utility companies that fall outside
standard debt-equity ratios, or that would fail the six criteria of
Section 7(d)(1) of PUHCA 1935; (v) public utility loans to, or
guarantees of indebtedness of, the holding company or any other
affiliate. Id. at 17-18.
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102. Detroit Edison submits that section 366.2 as currently worded
is far too open-ended, and leaves holding companies in an untenable
state of uncertainty with respect to the relevance of any ``books,
accounts, memoranda'' or ``other records.'' \91\ PacifiCorp concurs and
urges that, at a minimum, the Commission clarify that it will provide a
notice-and-comment proceeding before expanding its current information
collection under this provision.\92\
---------------------------------------------------------------------------
\91\ Detroit Edison Comments at 5-6. See also Cinergy Comments
at 21, EEI Comments at 5.
\92\ PacifiCorp Comments at 5.
---------------------------------------------------------------------------
Commission Determination
103. In PUHCA 2005, Congress left it to the Commission's discretion
to determine what books and records are relevant to the costs incurred
by a public utility or natural gas company and necessary or appropriate
for the protection of public utility or natural gas company customers
with respect to jurisdictional rates. We do not find it appropriate
here to follow APPA/NRECA's suggestion that we provide a general
definition of relevance. We have instead adopted the requirements in
Part 366 of the Commission's regulations. In particular, sections
366.21 and 366.22 require that holding companies and service companies
maintain books and records of their transactions in sufficient detail
to permit examination, audit, and verification of the financial
statements, schedules, and reports they are required to file with the
Commission or that are issued to shareholders. We will provide further
guidance as to what books and records are relevant at the technical
conference that we will convene within one year of the effective date
of PUHCA 2005 and in the separate rulemaking proceeding we will
institute to address changes in the Commission's Uniform System of
Accounts and record-retention requirements. We believe that these
provisions provide adequate certainty as to which books and records
that holding companies and service companies need to maintain and make
available to the Commission.
[[Page 75607]]
Preemption of State Laws
Comments
104. Several commenters request that the Commission confirm that
its own access under section 1264 does not preempt rights to access
information by state commissions under section 1265. In order to
prevent future arguments that the federal access provisions of section
1264 preempt state commission access under section 1265, Santa Clara
urges the Commission to grant this clarification in the final rule.\93\
NARUC emphasizes that Congress expressly provided that states would
have access under section 1265; that this means of state access was
non-exclusive; and that Congress did not contemplate federal occupation
of this field.\94\ Moreover, according to NARUC, there is no inherent
conflict between state access under either section 1265 or state law
and federal access under section 1264.\95\ Finally, Indiana Utility
Regulatory Commission (IURC) requests that the final regulations
include language paralleling the language of sections 1265(d), 1267(b),
1269, and 1275(c) of EPAct 2005 that confirms that the new law (and
regulations promulgated under it) does not disturb historical state
authority in the identified areas.\96\
---------------------------------------------------------------------------
\93\ Santa Clara Comments at 23-24. See also Arkansas PSC
Comments at 21, Missouri PSC Comments at 26-27, TANC Comments at 23-24.
\94\ NARUC Reply Comments at 3.
\95\ Id. at 3-4.
\96\ IURC Comments at 6.
---------------------------------------------------------------------------
Commission Determination
105. We agree with NARUC that there is no inherent conflict between
state access under either section 1265 or state law and federal access
under section 1264. We find that our own access under section 1264 does
not preempt rights to access information by state commissions under
section 1265. With respect to IURC's argument, we do not find it
necessary to adopt regulatory text on this point, in light of the clear
statutory language.
Scope of Commission Authority and Access to Data
Comments
106. APPA/NRECA urge the Commission to explicitly state in the
final rule that the data access granted under section 1264(a) of EPAct
2005 supplements, rather than supplants, the Commission's pre-EPAct
2005 access to books and records and that this pre-existing access
stems from the Commission's ratemaking authority and from the general
provisions of section 301 of the FPA and section 8 of the NGA.\97\
---------------------------------------------------------------------------
\97\ APPA/NRECA Comments at 21.
---------------------------------------------------------------------------
Commission Determination
107. The Commission grants APPA/NRECA's proposed clarification. The
Commission's pre-EPAct 2005 access to books and records pursuant to
section 301 of the FPA and section 8 of the NGA remains unchanged. As
provided in section 1271 of EPAct 2005, nothing in PUHCA 2005 limits
the Commission's authority under the FPA or the NGA.
State Access to Books and Records Obtained by the Commission
Comments
108. Oklahoma Corporation Commission recommends that the Commission
consider language that would allow state commissions to continue to
receive notices of any investigations of regulated public utility
companies.\98\ Public Citizen notes that Congress has not given state
commissions in PUHCA 2005 the right to require holding companies or
their associate companies to maintain, keep or preserve any records
affecting retail rates, so that the state commission can only require
the maintenance of holding company/associate company books and records
that affect only retail rates if the Commission uses its existing
authorities under FPA section 301 to do so. Public Citizen thus urges
the Commission to explicitly state in the final rule that the
Commission has the authority under FPA section 301 to require holding
companies and their associates to maintain books and records that state
commissions determine affect their retail rates and provide a process
through which the states can request the maintenance and preservation
of such books and records.\99\
---------------------------------------------------------------------------
\98\ Oklahoma Corporation Commission Comments at 4.
\99\ Public Citizen Comments at 4.
---------------------------------------------------------------------------
Commission Determination
109. In response to the request of Oklahoma Corporation Commission
that state commissions be apprised of any investigations of regulated
public utility companies, we believe our current practices regarding
the disclosure of investigations are appropriate and should not be
broadened at this time. We are open to further consideration on this
point at the technical conference. However, Congress set forth the
rights of state commissions to obtain access to the books and records
of companies within a holding company system in section 1265 of EPAct
2005, and they may seek to obtain access to the books and records of
holding companies in accordance with that provision. With respect to
Public Citizen's request that the Commission use section 301 of the FPA
to give states the opportunity to request the maintenance and
preservation of books and records that state commissions determine
affect their retail rates, we do not interpret section 301 to give the
Commission the authority to provide a process for states to request
maintenance of books and records for retail purposes. Congress has
addressed in section 1265 the issue of state access to books and
records of holding company systems and their members.
3. Exemption Authority
110. Section 1266(a) of EPAct 2005 directs the Commission to issue
a final rule within 90 days after the effective date of Subtitle F
exempting from the requirements of section 1264 of EPAct 2005 any
person that is a holding company, solely with respect to one or more:
(1) Qualifying facilities under the Public Utility Regulatory
Policies Act of 1978 (16 U.S.C. 2601 et seq. (2000));
(2) Exempt wholesale generators; or
(3) Foreign utility companies.
111. Section 1266(b) further directs the Commission to exempt a
person or transaction from the requirements of section 1264 if, upon
application or sua sponte:
(1) The Commission finds that the books and records of a person are
not relevant to the jurisdictional rates of a public utility or natural
gas company; or
(2) The Commission finds that a class of transactions is not
relevant to the jurisdictional rates of a public utility or natural gas
company.
112. PUHCA 2005 requires the Commission to exempt any person that
falls within the classes designated by section 1266(a) from the
requirements of section 1264, and therefore, the Commission proposed to
adopt such an exemption. In the NOPR, however, the Commission did not
propose to categorically exempt classes of entities or transactions
described in section 1266(b) from the requirements of section 1264.
Rather, we proposed to rely on case-by-case applications for these
exemptions until we have gained further experience subsequent to the
repeal of PUHCA 1935. However, we sought comment on whether the
Commission should exempt classes of transactions involving mutual fund
passive investors or other groups of passive investors from the new
federal books and records access requirements.
113. Finally, we noted that, although a person that is a holding
company
[[Page 75608]]
solely with respect to EWGs or QFs will be exempted from the federal
access to books and records provisions in section 1264, many EWGs and
QFs may nevertheless be public utilities under section 201 of the FPA
\100\ and remain subject to the Commission's authority with regard to
their books and records under section 301 of the FPA, unless otherwise
exempted.\101\ Below, the Commission addresses comments requesting that
the Commission adopt the following exemptions or waivers: (a) Passive
investors; (b) nontraditional utilities with no captive customers or
non-utilities, including power marketers; (c) certain holding company
and affiliate transactions; (d) electric power cooperatives; (e) local
distribution companies; (f) single-state holding companies; (g) holding
companies owning small generators; and (h) investors in independent
transmission companies.
---------------------------------------------------------------------------
\100\ 16 U.S.C. 824(e) (2000).
\101\ Id. at section 825.
---------------------------------------------------------------------------
114. As discussed further below, the Commission is adopting certain
specific exemptions and waivers proposed by commenters. We are also
providing in section 366.4(b) and (c) of our regulations the procedures
for filing for exemption or waiver, which are available for specified
persons or classes of transactions. A holding company that falls into
one of the identified categories may file for exemption or waiver by
submitting FERC-65A (Exemption Notification) or FERC-65B (Waiver
Notification) and shall be deemed to have a temporary exemption or
waiver upon a good faith filing. Notices of all such notifications of
exemption or waiver will be published in the Federal Register. If the
Commission has taken no action within 60 days after the date of the
filing, the exemption or waiver shall be deemed to have been granted.
The Commission may toll the 60-day period to request additional
information or for further consideration of the request; in such case,
the claim for exemption or waiver will remain temporary until such time
as the Commission has informed the holding company of its decision to
grant or deny the application by letter or order. In addition, the
Office of the Secretary will periodically issue notices listing the
holding companies whose notifications of exemption or waiver are deemed
to have been granted in the absence of Commission action to the
contrary within 60 days after the date of filing.
115. Holding companies that seek exemptions or waivers other than
those specifically identified in section 366.3(b) or (c) of the
Commission's regulations may not do so by means of FERC-65A or FERC-
65B. Such holding companies must instead seek an individual exemption
or waiver by filing a petition for declaratory order pursuant to
sections 366.3(e), 366.4(b)(2) and 366.4(c)(2). Such petitions will be
noticed in the Federal Register. No temporary exemption or waiver will
attach, and the requested exemption or waiver will be effective only if
approved by the Commission.
116. Finally, if a holding company that has been granted an
exemption or waiver under section 366.4(b) or (c) fails to conform with
any material facts or representations presented in its submittals to
the Commission in FERC-65A or FERC-65B, the exemption or waiver may no
longer be relied on. Also, the Commission may, on its own motion or on
the motion of any person, revoke the exemption or waiver granted under
section 366. 4(b), if the holding company fails to conform to any of
the Commission's criteria under this part for obtaining the exemption
or waiver.
a. Exemption of Passive Investors
Comments
117. Commenters expressed near-unanimous support for an exemption
for mutual fund and other passive investors from the requirements of
section 1264.\102\ Commenters note that the SEC exempted passive
investors under PUHCA 1935 and contend that such passive investors are
similarly exempt from PUHCA 2005.\103\ EEI urges the Commission to
follow current SEC no-action letter practice for exempting passive
investors from holding company status under section 2(a)(7) of PUHCA
1935 and Commission practice in disclaiming jurisdiction under section
201(e) of the FPA.\104\ Barclays requests the Commission establish an
additional, regulatory exclusion from the books and records
requirements for passive investments in utilities that are made by
collective investment vehicles whose assets are managed by banks,
savings and loan associations and their operating subsidiaries, or
brokers and dealers.\105\ National Grid suggests that the Commission
should define a passive investor as an entity that holds 50 percent or
less of outstanding voting securities of public utility or holding
company and does not otherwise exercise controlling influence.\106\
Alternatively, National Grid suggests that, if Commission does not
adopt this proposal, it should define ``holding company'' to exclude
passive investors who own, control, or hold 20 percent or less of the
outstanding voting securities.\107\ Finally, Morgan Stanley recommends
that the Commission modify section 366.2 of the proposed rules to make
clear that holding securities in the ordinary course of business as a
broker/dealer, underwriter or as a fiduciary, and not exercising
operations control over the utility, does not make one a ``holding
company.'' \108\
---------------------------------------------------------------------------
\102\ See, e.g., APPA/NRECA Comments at 20, Arkansas PSC
Comments at 12, Capital Research and Management Company Comments at
3-4, Emera Comments at 8, E.ON/LG&E Energy Comments at 9-11,
International Transmission Company Comments at 10, Investment
Adviser Association Comments at 2, Investment Company Institute
Comments at 2-3, Missouri PSC Comments at 19, PacifiCorp Comments at
5, Southern Company Services Comments at 9, Tri-State Generation
Comments at 8.
\103\ Chairman Barton Reply Comments at 5, EPSA Comments at 21-
22 (stating that there is a long line of SEC no-action letter
precedent addressing passive investor equity interests in holding
companies and public utility companies under PUHCA 1935 in which it
was determined that passive investors did not own voting
securities), Scottish Power Comments at 6-7.
\104\ EEI Comments at 21.
\105\ Barclay Comments at 5.
\106\ National Grid Comments at 12.
\107\ Id. at 14.
\108\ Morgan Stanley Comments at 9.
---------------------------------------------------------------------------
118. Some commenters expressed general support for the proposed
exemption, but argued that passive investors should not be exempted
when certain circumstances were present. NARUC submits that the
Commission should not exempt passive investors where either of the
following conditions occurs or is present: (1) The transaction involves
and will result in an ownership interest of ten percent or more of the
debt or equity capital of any entity within the holding company system;
or (2) the transaction will result in the mutual fund or other passive
investor groups holding two or more seats or ten percent or more of the
voting representation seats on the board of directors of any entity
within the holding company system.\109\ Wisconsin PSC and CEOB assert
that passive investors can exert control where their stock ownership or
debt interest grants them control or influence over the selection of
the board of directors. They urge the Commission to scrutinize
carefully an application for an exemption filed by a passive investor
who holds the power to influence the outcome of any jurisdictional
issue that comes before the holding company's board of directors, and
to deny the application for exemption in those circumstances.\110\ MBIA
Insurance, on the other hand, argues that the Commission should not at
this time
[[Page 75609]]
grant an across-the-board exemption for entities that may claim passive
investor status.\111\
---------------------------------------------------------------------------
\109\ NARUC Comments at 7-8.
\110\ CEOB Comments at 3, Wisconsin PSC Comments at 5.
\111\ MBIA Insurance Comments at 14.
---------------------------------------------------------------------------
Commission Determination
119. We agree with the majority of commenters that the Commission
should exempt passive investors from section 1264. Passive investors do
not exercise control over jurisdictional companies, and thus the
Commission does not need access to their books and records for purposes
of ensuring just and reasonable rates. In response to the comments of
Barclay's and Morgan Stanley, we will also clarify here that the
exemption for passive investors applies to the following entities:
Mutual funds; passive investments in collective investment vehicles
whose assets are managed by banks, savings and loan associations and
their operating subsidiaries, or brokers/dealers; and persons that
directly, or indirectly through their subsidiaries or affiliates, buy
and sell the securities of public utilities in the ordinary course of
business as a broker/dealer, underwriter or fiduciary, and not
exercising operational control over the public utility.
120. We will not adopt a specific definition of ``passive
investor'' at this time. Our precedent under the FPA on whether certain
asset owners are ``passive'' and thus not public utilities provides
guidance for purposes of claiming exemption under PUHCA 2005; further
guidance may be provided in the Commission's rulemaking to implement
EPAct 2005 amendments to section 203 of the FPA. In addition, claimants
should describe the relevant facts in their FERC-65 (Notification of
Holding Company Status), FERC-65A (Exemption Notification), or petition
for declaratory order.
b. Nontraditional Utilities With No Captive Customers or Non-Utilities
Comments
121. EPSA proposes that the following classes of entities be
exempted from section 1264's requirements: (i) Utilities that do not
serve captive customers and are not affiliated with a utility that
serves captive customers (nontraditional utilities); and (ii) a holding
company that owns only nontraditional utilities and/or EWGs, FUCOs, or
QFs.\112\ According to EPSA, the PUHCA 2005 rate protections simply are
not needed for such entities.\113\ EPSA notes that the Commission has
reasoned that when nontraditional utilities serve no captive customers,
the potential for ``transactions undertaken by any of the non-
traditional affiliates [affiliates without captive customers] at the
expense of other non-traditional affiliates simply results in an
allocation of revenues among the `non-regulated' affiliates; the
profits ultimately go to the shareholders regardless of the entity that
makes the sale.'' \114\
---------------------------------------------------------------------------
\112\ EPSA Comments at 18.
\113\ Id.
\114\ Id. (citing U.S. Gen Power Services, L.P., 73 FERC ]
61,037 at 61,846 (1995)).
---------------------------------------------------------------------------
122. EPSA proposes that the Commission should not consider energy
marketers (i.e., energy sellers owning no ``hard'' assets for power
sales but only contracts for wholesale or retail electric energy sales
or retail gas sales) to be ``public-utility companies'' under the PUHCA
2005 definition. According to EPSA, if power marketers are not electric
utility companies, their parent companies would not be considered
utility holding companies under PUHCA 2005 by reason of their ownership
of such marketers. The same logic would apply to gas marketers, and
they too, therefore, should not be considered gas utility companies,
provided that they own no physical gas distribution assets and their
gas retail sales are made through contracts.\115\
---------------------------------------------------------------------------
\115\ EPSA Comments at 19-20.
---------------------------------------------------------------------------
Commission Determination
123. The Commission will exempt power marketers and other utilities
that do not serve captive customers and are not affiliated with a
utility that serves captive customers (i.e., non-traditional utilities)
from section 1264 because we find that the books and records of these
entities are not necessary to protect customers. Although we regulate
most power marketers' rates under the FPA pursuant to their
authorizations to sell at market-based rates, in situations where they
have no captive customers and are not affiliated with anyone that does
have such customers, their records are not necessary to fulfilling our
jurisdictional responsibilities to ensure just and reasonable rates.
With respect to EPSA's request for exemption of holding companies that
own only nontraditional utilities and/or EWGs, FUCOs, or QFs, PUHCA
2005 already exempts persons that are holding companies solely with
respect to one or more EWGs, FUCOs, or QFs, and we have determined it
appropriate to exempt power marketers and other utilities that do not
have captive customers. With respect to power marketers, as previously
noted, the SEC did not treat power marketers as public-utility
companies under PUHCA 1935, in contrast to the Commission's long-
standing determination that power marketers are public utilities under
the FPA. As discussed above, we will follow SEC precedent for purposes
of interpreting PUHCA 2005 and will not treat power marketers as
``electric utility companies'' under PUHCA 2005. However, this
interpretation will not affect our long-standing interpretation that
power marketers selling at wholesale in interstate commerce are public
utilities under the FPA.
c. Certain Holding Company and Affiliate Transactions
Comments
124. MidAmerican proposes that the Commission exempt from proposed
section 366.2(e) the following classes of transactions: (i) Where the
holding company affirmatively certifies on behalf of itself and its
subsidiaries, as applicable, that it will not charge, bill or allocate
to the public utility or natural gas company any costs or expenses in
connection with goods and service transactions, and will not engage in
financing transactions with any public utility except as authorized by
a state commission or the Commission; (ii) transactions between or
among affiliates that are independent of and do not include a public
utility or natural gas company; and (iii) transactions between a public
utility company or a natural gas company and an affiliate if such
transactions are conducted in the ordinary course of business, occur at
prevailing market prices or on terms not different from those made
available to unaffiliated entities and do not exceed individually or in
the aggregate in cost to the public utility company or natural gas
company one-half of one percent of its operating revenue during its
most recent fiscal year, or are conducted in accordance with and
pursuant to an approved rate or service tariff.\116\
---------------------------------------------------------------------------
\116\ MidAmerican Comments at 8-11.
---------------------------------------------------------------------------
125. MidAmerican states that, by granting an exemption where a
holding company certifies that it will not charge, bill or allocate to
the public utility or natural gas company any costs in connection with
goods and service transactions, the Commission will be encouraging
additional investments from outside the utility industry in the
country's energy infrastructure.\117\ Further, the Commission could
periodically confirm the exemption through a review of the books and
records of the public utility or natural gas company or annual
certification by the holding company.\118\
---------------------------------------------------------------------------
\117\ Id. at 8.
\118\ Id.
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[[Page 75610]]
126. MidAmerican proposes exemptions for transactions in the
ordinary course of business between and among a public utility holding
company's non-utility subsidiaries and affiliates and de minimis
ordinary course transactions involving the public utility company. In
arguing for these exemptions, MidAmerican states that without these
exemptions these transactions will be too numerous to track and
requiring an individual exemption for each of them from Rule 366.2(e)
could overwhelm the Commission while increasing the cost of doing
business for the regulated entities.\119\
---------------------------------------------------------------------------
\119\ Id. at 11.
---------------------------------------------------------------------------
Commission Determination
127. We will grant MidAmerican's first and second requests for
exemptions: (i) In cases where the holding company affirmatively
certifies on behalf of itself and its subsidiaries, as applicable, that
it will not charge, bill or allocate to the public utility or natural
gas company any costs or expenses in connection with goods and service
transactions, and will not engage in financing transactions with any
public utility except as authorized by a state commission or the
Commission; and (ii) transactions between or among affiliates that are
independent of and do not include a public utility or natural gas
company. These classes of transactions are not relevant to
jurisdictional rates and will therefore be exempted from the books and
records requirements of section 1264.
128. The Commission will deny MidAmerican's request for an
exemption of transactions between a public utility or a natural gas
company and an affiliate if such transactions are conducted in the
ordinary course of business, occur at prevailing market prices or on
terms not different from those made available to unaffiliated entities
and do not exceed individually or in the aggregate in cost to the
public utility or natural gas company one-half of one percent of its
operating revenue during its most recent fiscal year, or are conducted
in accordance with and pursuant to an approved rate or service tariff.
These transactions involve regulated companies, and we do not believe
they should be exempted because of the potential for cross-
subsidization between regulated and non-regulated companies in the same
holding company system, which could adversely affect jurisdictional rates.
d. Rural Electric Cooperatives
Comments
129. Several commenters urge the Commission to exempt rural
electric cooperatives from section 1264. APPA/NRECA argue that the
Commission should recognize that under longstanding SEC precedent,
electric cooperatives were not regulated as public utility holding
companies under PUHCA 1935 and that, read together with the plain
language of PUHCA 2005, that precedent shows that rural cooperatives
fall outside PUHCA 2005. In addition, APPA/NRECA contend that, at an
absolute minimum, the Commission should make clear that those
cooperatives that have received no-action letters or other assurances
in the past from the SEC can continue to rely on those assurances
without any need to seek additional confirmation or a no-action
assurance or waiver from the Commission and adopt a class exemption
from PUHCA 2005 for cooperatives that are organized and operate in
reliance on such well-settled precedent.\120\ Similarly, Santa Clara
and TANC note that the SEC has consistently excluded rural cooperatives
from PUHCA 1935 requirements for several reasons, including the fact
that the ownership relationship in a cooperative is not a voting
security under PUHCA 1935 and urge the Commission to follow this
precedent in implementing PUHCA 2005.\121\
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\120\ APPA/NRECA Comments at 42-44.
\121\ Santa Clara Comments at 23, TANC Comments at 23. See also
Redding Comments at 3.
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Commission Determination
130. The Commission finds the arguments of APPA/NRECA and other
commenters in this regard persuasive. We find that all electric power
cooperatives, including those that are regulated by the Commission
under the FPA, i.e., those that are not financed under the Rural
Electrification Act of 1936 or that sell four million or more megawatt-
hours of electricity per year, should be exempted. We are therefore
granting the request to define ``voting security'' to not include
member interests in electric power cooperatives; this definition in and
of itself should result in most cooperatives being excluded from the
definition of a holding company, and thus most cooperatives will
automatically fall outside the scope of PUHCA 2005. For those
cooperatives that might still fall within the definition of holding
company and thus within the scope of PUHCA 2005, they may be exempted
from PUHCA 2005 by filing for exemption pursuant to the procedures in
section 366.4(b).\122\
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\122\ To the extent electric cooperatives are public utilities
subject to our jurisdiction under the FPA, as noted above, we have
broad authority under FPA section 301 to obtain the books and
records of regulated companies and any person that controls or is
controlled by such companies if relevant to jurisdictional
activities. 16 U.S.C. 825 (2000); accord 15 U.S.C. 717g (2000).
---------------------------------------------------------------------------
e. Local Distribution Companies Comments
131. American Gas Association requests that the Commission clarify
that local distribution companies that are not regulated by the
Commission are not embraced within the phrase ``natural-gas company.''
\123\ American Gas Association also notes that the Commission does not
regulate local distribution companies.\124\ Washington Gas & Light
argues that the Commission should clarify that the proposed rules do
not apply to local distribution companies and section 7(f) companies
that have previously been exempt from regulation by the
Commission.\125\ Washington Gas & Light notes that no regulatory gap
exists here, and new Commission regulation would be duplicative.\126\
---------------------------------------------------------------------------
\123\ American Gas Association Comments at 2. See also Keyspan
Corporation (Keyspan) Comments at 6-7.
\124\ American Gas Association Comments at 3.
\125\ Washington Gas & Light Comments at 3.
\126\ Id. at 4.
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Commission Determination
132. The Commission finds that the books and records of local
distribution companies that are not regulated by the Commission are not
relevant to jurisdictional rates. Therefore, we will amend the proposed
rules to reflect that local distribution companies are exempt from the
regulations.
f. Single-State Holding Companies
Comments
133. Consolidated Edison (ConEd) contends that customers of single-
state holding companies are adequately protected by the Commission's
existing regulatory authority under the FPA and NGA, so that the
imposition of additional books-and-records requirements would be
superfluous. Accordingly, ConEd requests that the proposed regulations
be revised to expressly exempt from the provisions of section 366.2 all
single-state holding companies that were exempt under PUHCA 1935 as of
the date of enactment of PUHCA 2005 and all companies that subsequently
demonstrate to the Commission their status as a single-state holding
company. Those companies should remain exempt pending a change
[[Page 75611]]
in circumstances that alters a company's single-state status.\127\
---------------------------------------------------------------------------
\127\ ConEd Comments at 3.
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134. In its reply comments, Public Citizen argues that the single
state exemption, for example, requires that both a utility and its
holding company primarily operate in a single state, so that the state
is capable of regulating the holding company, as well as the utility,
under state law. Such companies at a minimum should be required to file
an annual statement, as they do now, to show that they continue to meet
the standards for such an exemption.\128\
---------------------------------------------------------------------------
\128\ Public Citizen Reply Comments at 13.
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Commission Determination
135. We cannot approve a categorical exemption for single-state
holding companies. Congress has chosen not to re-enact this exemption
from PUHCA 1935, and ConEd has not demonstrated that single-state
holding companies satisfy the criterion for exemption pursuant to
section 1266(b) of PUHCA 2005 (i.e., that their books and records are
not relevant to the jurisdictional rates of a public utility or natural
gas company). Nevertheless, single-state holding companies do not
present the scope of potential cross-subsidy and cost allocation issues
that multi-state holding companies do; state commissions generally have
significant regulatory authority over single-state holding companies
and their transactions, and we have sufficient authority pursuant to
sections 205 and 206 of the FPA and sections 4 and 5 of the NGA to
address any issues that could affect jurisdictional rates for public
utilities in single-state holding companies. Therefore, the Commission
will grant a waiver of our requirements in sections 366.21, 366.22, and
366.23 of our regulations \129\ for single-state holding companies.
---------------------------------------------------------------------------
\129\ The Commission is permitted to exempt entities from the
requirements of section 1264 only if their books and records are not
relevant to jurisdictional rates. In this case, the books and
records are relevant to jurisdictional rates, so we cannot exempt
single-state holding companies from the statute. However, the
Commission always possesses discretion to waive a regulatory requirement.
---------------------------------------------------------------------------
g. Holding Companies Owning Industrial Small Generators
Comments
136. Barrick Goldstrike Mines argue that the Commission should
exempt the holding companies of small industrial generators and their
transactions from regulatory oversight because the exemptions that have
existed until now, have encouraged the development of additional
electrical generation.\130\ Alternatively, Mittal Steel requests that
the Commission issue an exemption to any company who would not
otherwise qualify as a ``holding company,'' but for its ownership of an
entity that has been granted authority to sell electric power for
resale at market-based rates. If the Commission is unwilling to adopt a
general exemption as proposed by Barrick and Mittal Steel at this time,
the Commission should grant a limited waiver of its PUHCA 2005
regulations to persons that file good faith applications for exemptions
under section 366.3 within sixty (60) days of the Commission's final
order in this proceeding, with such waiver effective until such time as
the Commission denies the exemption application.\131\
---------------------------------------------------------------------------
\130\ Barrick Goldstrike Mines Comments at 9. See also Morgan
Stanley Reply Comments at 6.
\131\ Mittal Steel Reply Comments at 1-2.
---------------------------------------------------------------------------
Commission Determination
137. The Commission is not persuaded by the arguments of Barrick
and Mittal Steel to provide a blanket exemption for holding companies
owning industrial small generators, since they have not demonstrated
that the statutory criterion is satisfied, i.e., that books and records
of such holding companies are not relevant to jurisdictional rates.
However, to eliminate what might otherwise be a barrier to the
development of additional electric generation, we will allow a waiver
of our requirements in sections 366.21, 366.22, and 366.23 of our
regulations to persons that own a small amount of generation (100 MW or
less) used fundamentally for their own load or for sales to affiliated
end-users. Similar entities, but owning more than 100 MW of generation,
may individually seek waiver by filing a petition for declaratory
order, and we will consider such petitions in light of all relevant
information.
138. With respect to Mittal Steel's request regarding good faith
applications, we note that in section 366.4(b) of our regulations, we
have provided that the filing of FERC-65B provides temporary waiver
upon a good faith filing and that after 60 days a waiver is deemed to
be granted, absent timely Commission action to the contrary.
h. Investors in Independent Transmission Companies
Comments
139. International Transmission Company submits that investors in
independent transmission companies that are subject to Commission
jurisdiction should be exempted and that, without this exemption, this
requirement creates a new barrier to investment.\132\
---------------------------------------------------------------------------
\132\ International Transmission Company Comments at 8.
---------------------------------------------------------------------------
Commission Determination
140. The Commission will grant waiver of the our regulations under
PUHCA 2005 for investors in independent transmission companies. The
rate issues that may arise in connection with entities that serve
retail customers or that generate or sell electricity at wholesale are
not present with respect to an independent transmission company.
Further, the Commission has sufficient authority under sections 205 and
206 of the FPA, as well as informational authority under section 301 of
the FPA and section 1264 of EPAct 2005, to obtain the relevant books
and records of a jurisdictional independent transmission company, and
any company that controls or is controlled by such jurisdictional
company. Therefore, the Commission will grant a waiver of our
requirements in sections 366.21, 366.22, and 366.23 of our regulations
for investors in independent transmission-only companies.
4. Allocation of Costs of Non-Power Goods or Services
141. Section 1275(b) of EPAct 2005 provides that, in the case of
non-power goods or administrative or management services provided by an
associate company organized specifically for the purpose of providing
such goods or services to any public utility in the same holding
company system, at the election of certain holding company systems or a
state commission having jurisdiction over the public utility, the
Commission, after the effective date of PUHCA 2005, shall review and
authorize an allocation of costs for such goods and services to the
extent relevant to that associate company. In the NOPR, we proposed to
reflect this statutory provision in new section 366.5(b) of our regulations.
a. Mandatory Filing of Cost-Allocation Agreements
142. In the NOPR, we noted that, irrespective of the new section
1275(b) of PUHCA 2005, with the repeal of PUHCA 1935 and the
elimination of SEC review of the allocation of costs for non-power
goods and services, we have authority under sections 205 and 206 of the
FPA and sections 4 and 5 of the NGA to review the rate recovery in
jurisdictional rates of such associate and affiliated company non-power
goods
[[Page 75612]]
and services costs, either upon application under section 205 of the
FPA or section 4 of the NGA or upon complaint or our own motion under
section 206 of the FPA and section 5 of the NGA, and that we also have
the authority to review and/or require the filing of cost-allocation
agreements with the Commission since they are contracts affecting
jurisdictional rates.\133\ We invited comments as to whether, in light
of the repeal of PUHCA 1935, holding companies that prior to the repeal
of PUHCA 1935 were registered holding companies should be required to
file such cost-allocation agreements with the Commission under section
205 of the FPA and section 4 of the NGA.
---------------------------------------------------------------------------
\133\ 16 U.S.C. 824d-e (2000); accord 15 U.S.C. 717c-d (2000);
see generally EPAct 2005 at Sec. 1275(c) (stating that nothing in
section 1275 affects the authority of the Commission under other
applicable law). While the scope of our jurisdiction over wholesale
sales of natural gas is more limited than our jurisdiction over
wholesale sales of electric energy, and our rate review may differ
in certain respects, such reviews could be undertaken under sections
4 or 5 of the NGA.
---------------------------------------------------------------------------
Comments
143. A number of commenters supported the Commission's proposal to
require holding companies that were registered under PUHCA 1935 to file
cost-allocation agreements under section 205 of the FPA and section 4
of the NGA.\134\ These commenters emphasize the importance of
information on cost allocations for effective federal and state
regulation.\135\ In addition, Santa Clara argues that Commission
oversight of cost allocations is necessary due to the lack of
uniformity of state review.\136\ Santa Clara further emphasizes that,
under current rules promulgated pursuant to section 13 of PUHCA 1935,
the SEC generally requires that such companies seek prior approval from
the SEC to engage in such transactions. Thus, the requirement to file
cost-allocation agreements with the Commission would simply maintain
the current obligation, albeit with a different agency.\137\
---------------------------------------------------------------------------
\134\ See, e.g., Georgia PSC Comments at 2, Santa Clara Comments
at 6-7, TANC Comments at 6-7.
\135\ Georgia PSC at 2, IURC Comments at 7, NARUC Comments at 9,
Ohio PSC Reply Comments at 2.
\136\ Santa Clara Comments at 8.
\137\ Id. at 6. See also American Public Gas Association Comments at 4.
---------------------------------------------------------------------------
144. Some commenters suggest expansion of the Commission's proposed
filing requirement. APPA/NRECA noted that the risk of misallocation of
costs and cross-subsidization does not depend on whether the public
utility holding company was registered or statutorily exempted under
PUHCA 1935 and urge the Commission to require the filing of all cost-
allocation practices between public utility and non-utility activities,
including both formerly registered and exempted utility holding
companies.\138\ NARUC recommends that the Commission institute
procedures for periodic audits of cost allocations, to be conducted in
coordination with state regulators.\139\
---------------------------------------------------------------------------
\138\ APPA/NRECA Comments at 7. See also American Public Gas
Association Comments at 4, MBIA Insurance Comments at 20, Missouri
PSC Comments at 8-9, NASUCA Comments at 9, Ohio PUC Comments at 3,
Utility Workers Comments at 3-4, Wisconsin PSC Comments at 7.
\139\ NARUC Comments at 9 (arguing that multi-state holding
companies should be subject to filing requirement), Ohio PUC Reply
Comments at 2, AGPA Comments at 4, NASUCA Comments at 9. But see
National Grid Reply Comments at 9-10. National Grid responds to
NARUC, arguing that there is no general distinction under PUHCA 2005
between formerly registered multi-state holding companies and
typically exempt single-state holding companies except in section
1275's single-state exemption and that there is no reason to impose
a separate requirement to file cost allocation agreements on any
holding company.
---------------------------------------------------------------------------
145. Several commenters opposed the Commission's proposed filing
requirement as contrary to Congress' intent and inconsistent with the
statutory scheme established by PUHCA 2005 and the FPA. FirstEnergy
contends that there is nothing in PUHCA 2005 to suggest that the
Congress intended to grant the Commission the authority to regulate the
agreements for procurement of non-power goods and services by public
utility companies from associated service companies in the same way
that it regulates the sale of electricity for resale and that, if the
Commission found that such agreements are ``* * * contracts affecting
jurisdictional rates'' within the meaning of section 205(c) of the FPA
it would be asserting jurisdiction over virtually every agreement for
procurement of non-power goods and services by all regulated electric
utilities.\140\ Entergy argues that the Commission's proposal is
inconsistent with the voluntary review procedures established under
section 1275(b) of EPAct 2005. According to Entergy, to mandate the
filing of such service company agreements would read out of PUHCA 2005
the ability of the holding company or applicable retail regulators to
elect or, more importantly, to not elect Commission review and
authorization of cost allocations.\141\
---------------------------------------------------------------------------
\140\ FirstEnergy Comments at 11.
\141\ Entergy Comments at 7-8. See also Chairman Barton Reply
Comments at 9, Southern Company Services Comments at 3.
---------------------------------------------------------------------------
146. EPSA opposes the mandatory filing requirement because it
contends that the Commission lacks jurisdiction to impose this
requirement under the FPA. EPSA asserts that section 205 of the FPA
requires only public utilities as defined in section 201(e) of the FPA
to file with the Commission the schedules, tariffs and agreements under
which they provide FPA jurisdictional services. Registered holding
companies, by contrast, (and non-registered holding companies) may have
public utility subsidiaries, but they are not public utilities under
section 201(e) of the FPA. In addition, EPSA claims that being required
to make filings under section 205 of the FPA could force a holding
company to become a fully regulated public utility. Under existing
Commission precedent, upon the acceptance of a filing under section 205
of the FPA, the Commission has deemed that the filing entity owns FPA
jurisdictional facilities within the meaning of section 201(e) of the
FPA. Hence, they argue, if registered holding companies are required to
file cost-allocation agreements under section 205, this could have the
unintended effect of forcing such companies to become public
utilities.\142\
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\142\ EPSA Comment at 23-25. EPSA's argument that the filing of
a contract affecting jurisdictional rates forces every party to the
contract to become a jurisdictional public utility is erroneous and
a misunderstanding of the law. See also NiSource Comments at 13.
NiSource further states that it is opposed to the mandatory filing
requirement, but if filing is made mandatory, such agreements should
be filed for informational purposes only in the same manner as cash
management agreements.
---------------------------------------------------------------------------
147. A number of commenters state that the Commission already has
authority under sections 205, 206, and 301 of the FPA and PUHCA 2005 to
require the public utility to file any relevant cost-allocation
agreements with affiliates to the extent they affect jurisdictional
rates. Thus, they argue, there is no need to impose an additional
filing requirement.\143\ Dominion and EEI argue that there should be no
mandatory filing unless these agreements are relevant to Commission
review of cost-allocation at the election of a holding company or a
state commission pursuant to section 1275(b) of PUHCA 2005, or where
they are relevant to a Commission rate proceeding. According to
Dominion and EEI, there are no grounds for reopening all cost-
allocation arrangements at this time by requiring that allocation
agreements to be filed for
[[Page 75613]]
review under section 205 of the FPA and section 4 of the NGA.\144\
---------------------------------------------------------------------------
\143\ Ameren Services (Ameren) Comments at 15-16, Entergy
Comments at 14, E.ON/LG&E Energy Comments at 19, EPSA Comments at
24-25, Scottish Power Comments at 9, Santa Clara Comments at 6-7.
See also Energy East Comments at 14 (arguing that cost-allocation
methods are disclosed in the report on Form U-13-60, so there is no
reason to require their filing in another context).
\144\ Dominion Comments at 18-19, EEI Comments at 25-26. See
also Alliant Comments at 6, Ameren Comments at 15, Scottish Power
Comments at 9.
---------------------------------------------------------------------------
148. Finally, Coral Power and Shell WindEnergy argue that holding
companies that own only EWGs, FUCOs, and QFs and are not affiliated
with traditional utilities with captive ratepayers should be exempted
from the filing requirement. They argue that such entities typically
sell energy at negotiated or market-based rates, not at cost-based
rates, so there can be no issue of cost allocation when rates are not
based on the generator's costs, so that they cannot pass through
excessive costs associated with affiliate transactions without pricing
themselves out of the market.\145\
---------------------------------------------------------------------------
\145\ Coral Power/Shell WindEnergy Comments at 12.
---------------------------------------------------------------------------
Commission Determination
149. We reject arguments that the Commission does not have the
authority under the FPA to require public utilities that are members of
a holding company system to file agreements involving the allocation of
costs of non-power goods and services to public utilities and other
members of the holding company. Clearly, if one or more of the public
utility members of the holding company seeks to recover their share of
the allocated costs in jurisdictional rates, the agreement is a
contract affecting rates and may be reviewed by the Commission insofar
as it pertains to jurisdictional rates.
150. We also disagree with Entergy's argument that, if the
Commission were to require cost-allocation agreements affecting
jurisdictional rates to be filed, this would be inconsistent with
section 1275(b) of PUHCA 2005, which allows holding company systems or
state commissions to obtain a Commission determination of appropriate
cost allocations under such agreements. While the Commission has
discretion under section 205(c) of the FPA to require contracts
affecting jurisdictional rates to be filed (i.e., contracts affecting
rates are to be filed within such time and in such form as the
Commission may prescribe),\146\ and may on its own change cost
allocations to jurisdictional companies that seek recovery of the costs
in jurisdictional rates, we interpret section 1275(b) to require the
Commission to make a cost-allocation determination if one is sought by
the holding company system or the state commission.
---------------------------------------------------------------------------
\146\ 16 U.S.C. 824d(c) (2000). See also 15 U.S.C. 717c(c) (2000).
---------------------------------------------------------------------------
151. The Commission will not mandate the blanket filing of cost-
allocation agreements governing the costs of non-power goods and
services purchased by jurisdictional public utilities from affiliated
service companies under section 1275(b) of EPAct 2005. As discussed
above, although we have the authority to require the filing of cost-
allocation agreements pursuant to our ratemaking authority under
sections 4 and 5 of the NGA and sections 205 and 206 of the FPA, we do
not find it necessary to do so in light of the requirement that
traditional, centralized service companies (i.e., service companies
that are not special-purpose companies such as a fuel supply company or
a construction company) file relevant cost-allocation information on
FERC Form No. 60. FERC Form No. 60 is a less burdensome method for
collecting this information from service companies. Furthermore, where
appropriate, we will rely on our ratemaking authority to examine these
agreements or require them to be filed on an as-needed basis to
determine whether the regulated utility's purchases of non-power goods
and services were prudently incurred and just and reasonable.
152. We agree with the numerous commenters who express a desire to
protect captive customers from inflated affiliate transactions.
However, imposing a blanket requirement to file each cost-allocation
agreement for non-power goods and services is not necessary to fulfill
our jurisdictional responsibilities. Instead, we believe that the
review of cost-allocation information contained in FERC Form No. 60
submissions by traditional, centralized service companies, review of
service agreements and other information in the context of rate
proceedings, and/or review of cost information through the audit
function provide sufficient protection for customers.
b. Inclusion of Natural Gas Companies Under Section 1275(b)
153. In the NOPR, we also noted that section 1275(b) provides that
holding companies and state commissions may under certain circumstances
require Commission review and authorization of cost allocations for
non-power goods or services provided by service companies to public
utilities, but it does not provide for such determinations where such
non-power goods and services are provided to gas utility companies and
natural gas companies. We invited comments as to whether the Commission
should recommend an amendment clarifying that holding company systems
and state commissions having jurisdiction over gas utility companies
and natural gas companies in the holding company systems are included
within the scope of section 1275(b).
Comments
154. Commenters were generally supportive of the Commission's
proposal in this regard. Dominion and EEI state that such a
clarification would be appropriate with respect to holding companies
with combined electric utility company and gas utility company systems
because cost allocations in those systems will affect both types of
companies and the inclusion of both in section 1275(b) would help
ensure that a consistent approach is applied throughout the
system.\147\ NARUC also supports the proposal, arguing that, since gas
utility companies and natural gas companies are included in most of the
other provisions of PUHCA 2005, their omission from section 1275(b)
impacts the Commission's ability to prevent the cross-subsidization of
affiliates of public utilities and natural gas companies, as well as
effectively eliminating the prior review of the allocation of service
company costs upon the request of state commissions and holding company
systems to public utilities.\148\ In addition, NARUC recommends that
gas-related agreements be filed with the Commission and that the
Commission institute procedures for periodic audits, as discussed above
in reference to the electric context.\149\
---------------------------------------------------------------------------
\147\ Dominion Comments at 19-20, EEI Comments at 26. See also
Ameren Comments at 16, Cinergy Comments at 24-25, Energy East
Comments at 12, Keyspan Comments at 5, NASUCA Comments at 3,
Northeast Utilities Comments at 6, Oklahoma Corporation Commission
Comments at 5.
\148\ NARUC Comments at 9-10. See also IURC Comments at 9-10,
Ohio PUC Comments at 3-4.
\149\ Id. at 10.
---------------------------------------------------------------------------
155. Duke opposes the inclusion of natural gas companies under
section 1275(b) because, unlike public utilities, natural gas companies
are not subject to the ratemaking authority of state regulatory
commissions, and therefore are not in danger of incurring trapped or
otherwise unrecoverable costs as a result of conflicting state
commission decisions.\150\
---------------------------------------------------------------------------
\150\ Duke Comments at 5. See also NiSource Comments at 9.
---------------------------------------------------------------------------
Commission Determination
156. In the report to Congress mandated by section 1272(2) of EPAct
2005, we intend to request that Congress clarify whether it intended
section 1275(b) to include natural gas companies and, if so, to adopt a
conforming amendment. As EEI and
[[Page 75614]]
Dominion note, many holding company systems include both electric and
natural gas companies, utilities, affiliates, and subsidiaries.
Maintaining a consistent standard would add to transparency and reduce
confusion.
c. Adoption of the SEC ``At Cost'' Standard
157. The SEC and state commissions previously have been primarily
responsible for determining allocations of costs for non-power goods
and services among the various associate companies in registered
holding company systems, and these allocations have been made on an
``at cost'' basis. By contrast, the Commission's long-standing policy
is that registered holding company special-purpose subsidiaries must
provide non-power goods and services to a public utility regulated by
the Commission at a price no higher than market. For at least a decade,
we have imposed this standard as a condition for approval of mergers
that result in the creation of a new registered holding company.\151\
We invited comments as to whether the Commission should apply the
market standard for the allocation of costs for non-power goods and
services, or if we should instead adopt the SEC at cost standard.
---------------------------------------------------------------------------
\151\ See Inquiry Concerning the Commission's Merger Policy
Under the Federal Power Act: Policy Statement, Order No. 592, 61 FR
68595 (Dec. 18, 1996), FERC Stats. & Regs., Regulations Preambles
July 1996-December 2000 ] 31,044 at 30,124-25 (1996) (Merger Policy
Statement), reconsideration denied, Order No. 592-A, 62 FR 33341
(June 19, 1997), 79 FERC ] 61,321 (1997). Where the regulated public
utility has provided non-power goods for services to the non-
regulated affiliate, our policy has been that the public utility
provides the goods or services at the higher of cost or market.
---------------------------------------------------------------------------
Comments
158. The comments as to whether the Commission should adopt the
SEC's ``at cost'' standard were mixed, with a number of entities
expressing general support for a lower of cost or market standard.\152\
APPA/NRECA argue that, first, with respect to purchases of goods and
services by the public utility from a non-utility affiliate, a public
utility should not pay to a non-utility affiliate a price exceeding
what the public utility would have incurred had the public utility
self-provided the service or purchased it prudently from an
unaffiliated third party; similarly, if the affiliate can produce the
good or service at a below-market price, presumably so can the public
utility. APPA/NRECA assert that the pricing rule that supports these
principles is the Commission's market standard.\153\ Second, with
respect to the sale of goods and services by the public utility to the
non-utility affiliate, APPA/NRECA contend that the price to the non-
utility affiliate should be at no less than cost. According to APPA/
NRECA, this rule follows from the public utility's obligation to
minimize its revenue requirement, and a standard of no less than cost
removes any incentive for a public utility to ``over acquire''
resources and provide them at a price below cost to a non-utility
affiliate.\154\ Finally, with respect to public utility provision of
financial support to affiliated non-utility ventures, APPA/NRECA note
that section 12(c) of PUHCA 1935 prohibited a registered holding
company from receiving any such benefit from a public utility
subsidiary or any other subsidiary and urges the Commission to continue
this prohibition.\155\
---------------------------------------------------------------------------
\152\ See, e.g., Georgia PSC Comments at 3, NASUCA Comments at
10, Northeast Utilities Comments at 6 (Commission should also apply
standard to construction activities), Santa Clara Comments at 10-12,
TANC Comments at 10-12.
\153\ APPA/NRECA Comments at 9. See also Arkansas PSC Comments
at 3, Electricity Consumers Resource Council, et al. (ELCON)
Comments at 6, Kentucky Public Service Commission (Kentucky PSC)
Comments at 1, Missouri PSC Comments at 11, NASUCA 10.
\154\ Id. at 10. See also Arkansas PSC Comments at 3, Missouri
PSC Comments at 14, NASUCA Comments at 10.
\155\ Id. at 10-11. See also Missouri PSC Comments at 15-16.
---------------------------------------------------------------------------
159. APPA/NRECA note that the argument made for service companies
is the efficiency of centralization, but argue that the use of such
companies can do damage to auditability. The damage arises from the
holding company practice, endorsed by the SEC, of charging service
company costs to FERC Account 923--Outside Services. According to APPA/
NRECA, what appears on the public utility's books is not detail about
each service company cost, but instead a single large charge
representing the public utility's allocated share of total service
company cost. They further argue that the use of the Commission's
``Outside Services'' account implies an arm's-length relationship
between the buyer of the outside services and the supplier; but in fact
the relationship between service company and public utility is not at
arm's length. APPA/NRECA contend that the solution for this problem
would be for the Commission to require an accounting process that
treats the public utility operating company incurring these inter-
affiliate costs as if the public utility had incurred the costs
directly. The public utility then would post the charges to the
appropriate accounts (making sure to segregate the costs passed through
by the service company from the public utility's own directly incurred
costs), thereby facilitating oversight by the Commission and by outside
auditors.\156\
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\156\ APPA/NRECA Comments at 29.
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160. NARUC supports a lower of cost or market standard, noting that
the NARUC Guidelines state that: ``Generally, the price for services,
products and the use of assets provided by a non-regulated affiliate to
a regulated affiliate should be at the lower of fully allocated cost or
prevailing market prices. Under appropriate circumstances, prices could
be based on incremental cost, or other pricing mechanisms as determined
by the regulator.'' Although the NARUC Guidelines call for more
flexibility than was reflected in the NOPR, NARUC asserts that its
position and the Commission's standard for the allocation of costs for
non-power goods and services are consistent.\157\
---------------------------------------------------------------------------
\157\ NARUC Comments at 20.
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161. In their reply comments, Xcel and Progress Energy submit that
there are a number of fallacies to the arguments in favor of the market
standard. Xcel states that, first, if the affiliated service company
charges for its services at cost, it does not and cannot profit from
its activities. Second, the notion that at cost pricing could cause a
utility to pay a service company more for services than it would
otherwise incur is, as a practical matter, also wrong. Third, the
underlying premise of service company formation is that such
administrative and general activities can be performed more efficiently
and at a less costly rate by a service company on behalf of a utility
than a utility could perform the service for itself.\158\ Progress
Energy contends that, typically, service companies provide
administrative services such as tax, accounting, human resources,
legal, information technology, finance and shareholder relations, which
are materially different from other products or services needed by a
utility such as fuel, vehicles, poles, transformers, etc. Specifically,
the services provided by a service company are not fungible, and there
is no market for such specialized services.\159\
---------------------------------------------------------------------------
\158\ Xcel Reply Comments at 3-4.
\159\ Progress Energy Reply Comments at 2.
---------------------------------------------------------------------------
162. On the other hand, the majority of commenters favor the
continued use of the SEC's at-cost standard. Dominion and EEI argue
that the Commission has not demonstrated the need to revise the current
standards. They assert that the cost-allocation factors found in
registered holding company system service agreements have been worked
out in cooperation with both the SEC
[[Page 75615]]
and the relevant state commissions, and that there is no evidence that
the application of this standard has led to cross subsidization or
other forms of abuse.\160\ MidAmerican emphasizes that public utilities
have relied on the at cost standard as the basis for assigning the
costs of non-power goods and services and that these costs may be
subject to the provisions of an intercompany services agreement which
has received state regulatory approval and have proven to work
well.\161\ In addition, Entergy argues that its existing retail rates
are based on the at-cost standard and any changes will disrupt existing
agreements and retail rate structures.\162\ MBIA Insurance, however,
also asserts that many utilities have already committed to using a
lower-of-cost or market standard as part of various mergers. It
contends that holding companies already applying the lower of-cost-or-
market standard for non-power goods and services should continue
meeting this requirement and not disrupt pre-existing arrangements.\163\
---------------------------------------------------------------------------
\160\ Dominion Comments at 17, EEI Comments at 22-23. See also
Cinergy Comments at 21-22, Entergy Comments 9, E.ON/LG&E Energy
Comments at 14, FirstEnergy Comments at 14, Keyspan Comments at 4,
Progress Energy Comments at 3, Southern Company Services Comments at 4.
\161\ MidAmerican Comments at 13-14.
\162\ Entergy Comments at 9. See also Alliant Comments at 5-6,
Keyspan Comments at 4, Progress Comments at 4.
\163\ MBIA Comments at 17.
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163. Dominion and EEI further argue that there is no need to revise
these standards because the Commission can address this issue in
ratemaking proceedings. Given the repeal of PUHCA 1935 and section 318
of the FPA, they assert that there is no longer an impediment to the
exercise of the Commission's powers under sections 205 and 206 of the
FPA to disallow particular expenditures made at cost that the
Commission finds to be imprudent.\164\ AEP adds that cost-based
standards also have the benefit of being verifiable and easy to audit.\165\
---------------------------------------------------------------------------
\164\ Dominion Comments at 18, EEI Comments at 23-24. See also
Cinergy Comments at 23, E.ON/LG&E Energy Comments at 14, Xcel
Comments at 6.
\165\ AEP Comments at 5. See also Cinergy at 23.
---------------------------------------------------------------------------
164. EEI further asserts that a market test can be difficult to
apply for highly-specialized goods or services because there is no
market for the services supplied by a system service company and, thus,
it can be extremely difficult to calculate a market price for such
services. None of these difficulties accompany the at-cost
standard.\166\ Similarly, MidAmerican argues that, by using cost, the
public utility company or affiliate is not required to undertake a
potentially lengthy and subjective process to ascertain what a market
price would be for the non-power goods or service, which in many
instances, such as the allocation of employee labor, is not readily
available due to the variation in pay scales across the industry and
the country.\167\ Moreover, EEI argues that there is a significant
danger of under-recovery of costs under the Commission's market
standard where the service company's cost to provide a service is
higher than market. Thus, while the at-cost standard keeps the service
company whole, a lower of cost or market standard can lead only to
under-recovery and an increase in the regulated utilities' cost of
capital.\168\ Finally, Oklahoma Corporation Commission opposes the
adoption of the Commission's market basis because it might impose
additional costs on such entities due to potential requirements that
companies enter into a competitive bidding processes, hire consultants,
enter into special contracts, and use variable pricing structures based
on the different services that are provided.\169\ Santa Clara responds
that the at-cost standard allows the holding company to bill its
utility affiliate for the total cost of the non-power goods or
services, no matter how unnecessarily high the costs might be. Thus,
the holding company has no incentive to minimize its costs.\170\
---------------------------------------------------------------------------
\166\ EEI Comments at 23. See also Alliant Energy Corporation
(Alliant) Comments at 5-6, Ameren Comments at 16, AEP Comments at 6,
Cinergy Comments at 22, Energy East Comments at 13, Entergy Comments
at 10, E.ON/LG&E Energy Comments at 14, FirstEnergy Comments at 15,
Keyspan Comments at 4, Progress Energy Comments at 4, Southern
Company Services Comments at 4, Xcel Comments at 6.
\167\ MidAmerican Comments at 13.
\168\ EEI Comments at 23. See also Ameren Comments at 15, AEP
Comments at 6, Duke Comments at 4, Entergy Comments at 10, Energy
East Comments at 13-14, FirstEnergy Comments at 14.
\169\ Oklahoma Corporation Commission Comments at 5-6.
\170\ Santa Clara Comments at 12.
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165. Energy East and EPSA contend that the Commission lacks the
authority to impose its pricing standard. Energy East asserts that the
plain language of section 1275(b) indicates Congress' intent that the
Commission should retroactively review costs and then properly allocate
them. Nothing in section 1275(b), argues Energy East, indicates that
Congress intended that the Commission pre-approve the cost of non-power
goods and services rendered to associated public utilities under a
lower of cost or market pricing standard.\171\ EPSA argues that the
Commission does not have authority under the FPA, NGA or PUHCA 2005 to
approve the formation and corporate structure of any company in a
holding company system, let alone companies that propose to provide
services to holding company system companies. Thus, while the
Commission has the authority to disallow a utility's recovery in its
jurisdictional rates of improper affiliate charges, the Commission does
not have the authority to regulate transactions among non-utility
affiliates by requiring at-cost pricing, and, therefore, has no
authority to impose financial and complex accounting and reporting
requirements to implement at-cost pricing.\172\
---------------------------------------------------------------------------
\171\ Energy East Comments at 12.
\172\ EPSA Comments at 10-11.
---------------------------------------------------------------------------
166. Finally, some commenters suggest alternatives to switching to
the SEC's at-cost standard. Dominion argues that service companies that
have been subject to the SEC at-cost standard under PUHCA 1935 should
be permitted to continue using that standard if they so elect.\173\
American Transmission Company recommends that the Commission establish
a rebuttable presumption that cost equals market for those companies
that can demonstrate that they have appropriate purchasing practices in
force for those goods or services above a certain dollar amount.\174\
Entergy states that the Commission should not preclude holding company
systems from deviating from the at-cost standard to the extent that
such alternative pricing proposals are demonstrated to not result in
inappropriate cross-subsidization of non-utility associate
companies.\175\ IURC states that, while in most cases, the SEC's fully-
distributed cost may be appropriate, there will be instances where the
market standard will be appropriate; specifically, where there is
reasonable confidence that the market is sufficiently competitive to
produce an unbiased competitive price. In the absence of a competitive
market to determine the appropriate arm's-length value for a specific
transaction, incremental costs might be appropriate.\176\
---------------------------------------------------------------------------
\173\ Dominion Comments at 17, EEI Comments at 22-23. See also
Black Hills Comments at 4, Energy East Comments at 13, FirstEnergy
Comments at 13, NiSource Comments at 14, Northeast Utilities
Comments at 5, Southern Company Services Comments at 4.
\174\ American Transmission Company Comments at 4.
\175\ Entergy Comments at 10-11.
\176\ IURC Comments at 11.
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[[Page 75616]]
Commission Determination
167. As an initial matter, some commenters appear to misconstrue
the purposes of the Commission's request for comments on the use of the
SEC's ``at-cost'' standard. Contrary to EPSA's implication that the
Commission seeks to approve the formation and corporate structure of
companies within a holding company system, this was not the subject of
the Commission's proposal or request for comments. Rather, there are
two circumstances in which the ``at-cost'' or ``market'' standard may
arise in the context of the Commission's jurisdictional
responsibilities. First, the Commission has a responsibility to ensure
that the costs of non-power goods and services provided by a
traditional, centralized service company to public utilities within the
holding company system are just, reasonable, and not unduly
discriminatory or preferential. This can arise in the context of a
review of the prudence of costs incurred when a public utility seeks to
flow through the costs in jurisdictional rates or a general review of
the justness and reasonableness of the public utility's costs. It can
arise in the context of an individual public utility within the holding
company system or in the context of the appropriate non-discriminatory
allocation among multiple public utilities within the same holding
company system.\177\ In reviewing centralized service company cost
allocations, the Commission's focus would be on the costs allocated to
the jurisdictional public utilities, whether the jurisdictional public
utilities are bearing their fair share of costs vis-[agrave]-vis the
non-regulated affiliates (i.e., whether the non-regulated affiliates
are receiving an undue preference), and whether costs are fairly
allocated among public utilities. If the Commission disallowed costs to
be allocated to public utilities or changed the allocation among
multiple public utilities, this would not directly affect allocations
to the non-jurisdictional, non-regulated companies. Our concern and
jurisdictional responsibilities relate to how the costs are allocated
to and among Commission-jurisdictional companies, not how remaining
costs are allocated among the non-regulated affiliates.
---------------------------------------------------------------------------
\177\ While the Commission would have authority to require pre-
approval of non-power goods and services cost allocations to public
utilities that want recovery of such costs in Commission-
juridictional rates, the Commission historically has not taken such
an approach, and instead typically reviews such matters at the time
the public utiltiy files for rate recovery.
---------------------------------------------------------------------------
168. The second context in which the ``at-cost'' or ``market''
standard is likely to arise is when a service company that is a
special-purpose company within a holding company (e.g., a fuel supply
company or construction company), provides non-power goods or services
to one or more public utilities in the same holding company system. The
same potential issues arise: Whether the public utility's costs
incurred in purchasing from the affiliate are prudently incurred and
just and reasonable, and whether non-regulated affiliates purchasing
non-power goods and services from the same special-purpose company are
receiving preferential treatment vis-[agrave]-vis the public utility.
The Commission in this context also, if it found costs were imprudent,
unjust and unreasonable, or unduly discriminatory vis-[agrave]-vis the
public utility, would develop a rate or remedy applicable to the
jurisdictional public utility.
169. With these two types of situations in mind--traditional,
centralized service companies and service companies that are special-
purpose companies--we reach the following conclusions based on the
comments. The Commission will not require traditional, centralized
service companies currently using the SEC's at-cost standard to comply
with the Commission's market standard for their sales of non-fuel, non-
power goods and services to regulated affiliates. Fundamentally, we
agree with commenters such as American Transmission Company and
Progress Energy that centralized provision of accounting, human
resources, legal, tax and other such services benefits ratepayers
through increased efficiency and economies of scale. Further, we
recognize that it is frequently difficult to define the market value of
the specialized services provided by centralized service companies.
Accordingly, the Commission will apply a rebuttable presumption that
costs incurred under ``at cost'' pricing of such services are
reasonable. However, we will entertain complaints that ``at cost''
pricing for such services exceeds the market price, but complainants
will have the burden of demonstrating that that is the case.
170. We also agree with commenters such as Dominion and EEI that
the Commission has the power to disallow any expenditures that it finds
to be imprudent under sections 205 and 206 of the FPA, and sections 4
and 5 of the NGA. Additionally, the audit function can be used to
identify and protect against any cross-subsidization between regulated
public utilities and non-regulated affiliates.
171. With respect to non-power goods and services transactions
between holding company affiliates other than traditional, centralized
service companies, i.e., service companies that are non-regulated,
special-purpose affiliates such as a fuel supply company or a
construction company, we will continue our prior policies.\178\ First,
with respect to sales from a public utility to a non-regulated,
affiliated special-purpose company, we agree with APPA/NRECA that the
price should be no less than cost, i.e., the higher of cost or market;
otherwise, a public utility could attempt to game the system and forego
profits it could otherwise obtain by selling to a non-affiliate, to the
benefit of its non-regulated affiliate who receives a good or service
at a below-market price. When the situation is reversed, i.e., the non-
regulated, affiliated special-purpose company is providing non-power
goods and services to the public utility affiliate, the Commission will
continue to apply its market standard. The non-regulated, affiliated
special-purpose company may not sell to its public utility affiliate at
a price above the market price. We believe that such transactions
involving such non-regulated, affiliated special-purpose companies pose
a greater risk of inappropriate cross-subsidization and adverse effects
on jurisdictional rates.
---------------------------------------------------------------------------
\178\ Our adoption of different policies for traditional,
centralized service companies compared to special-purpose companies
could make the distinction between the two more important than it
has been previously. We view the former as performing generally
corporate administration functions and the latter as providing
generally a single input to utility operations, such as fuel supply,
construction, or real estate. If holding companies are unclear about
whether a subsidiary is a traditional, centralized service company
or a special-purpose company, they may seek a determination in an
appropriate proceeding. We will also monitor the issue through the
auditing process.
---------------------------------------------------------------------------
172. APPA/NRECA note that section 12(c) of PUHCA 1935 prohibits a
public utility from providing financial support to affiliated non-
utility ventures, and they suggest that the Commission continue this
prohibition through its regulations. Congress did not reenact this
provision of PUHCA 1935 in PUHCA 2005, and, although we believe we have
authority under the FPA and NGA to impose such a restriction, we do not
believe such a restriction is necessary at this time.
173. We find that APPA/NRECA raise some valid points concerning
service company billings and how those amounts should be reflected in
the accounts of a public utility company. However, resolution of this
issue may have policy implications as well as practical accounting
system implementation issues that should be
[[Page 75617]]
explored more broadly than the record in this proceeding allows.
Therefore, we decline to adopt at this time APPA/NRECA's
recommendations on this issue.
174. We disagree with Energy East and EPSA that section 1275 of
PUHCA 2005 in any way restricts this Commission's authority to impose
either the market standard or the at-cost standard. By remaining silent
on the standard to be employed, Congress has placed the matter squarely
within the Commission's discretion. Contrary to assertions by EPSA and
others, the Commission is not exceeding its authority by establishing
policies governing the sale or provision of non-power goods and
services by a non-regulated company to an affiliated public utility.
The standard used affects jurisdictional rates, and the Commission has
the authority to establish a standard insofar as it pertains to
jurisdictional rates pursuant to its ratemaking authority under
sections 205 and 206 of the FPA and section 4 and 5 of the NGA, as well
as pursuant to the additional authority to review and authorize cost
allocations requested under section 1275 of EPAct 2005.
d. Other Issues Regarding Cost-Allocation Agreements
Comments
175. APPA/NRECA assert that the language of proposed section
366.5(b) could be misinterpreted to mean that a company ``organized
specifically'' for one purpose (say, providing legal services to the
system's utility members) and that later takes on other
responsibilities (like providing accounting services to the system's
utility members) can escape review under this section (for example, at
the request of a state commission). Such ``after-acquired'' functions
should not preclude Commission review.\179\ Similarly, MBIA Insurance
contends that, even if the non-utility associate exists primarily for
another purpose, such as providing services to companies outside of the
system, its intra-system costs to regulated utilities should still be
subject to the Commission's review, if a state or holding company opts
for Commission review. To the extent that the Commission believes it
may lack the authority to adopt such a regulation, MBIA Insurance urges
the Commission to ask Congress to clarify or grant the Commission this
authority to protect customers and prevent regulatory gaps.\180\
---------------------------------------------------------------------------
\179\ APPA/NRECA Comments at 8. See also Missouri PSC at 9.
\180\ MBIA Insurance Comments at 18.
---------------------------------------------------------------------------
176. A number of commenters expressed concern about the potential
preemptive effect of Commission review of cost-allocation agreements.
In order to avoid any preemption issue, NARUC suggests that the filing
of such agreements occur under section 304 of the FPA and section 10 of
the NGA, instead of under section 205 of the FPA and section 4 of the
NGA.\181\ Missouri PSC states that a Commission-approved allocation
should bind Commission ratemaking but not state ratemaking, except in
limited circumstances, and urges the Commission to make clear that a
state commission is not preempted by any Commission-determined service
cost allocation, whether the initiating entity is a holding company
system or another state commission.\182\ In addition, Missouri PSC
urges the Commission not to interpret section 1275(b) to permit gaming
of the state commission retail ratemaking process by holding companies
or state commissions, i.e., to permit state commissions or holding
companies to petition the Commission to review and authorize a holding
company system-wide cost-allocation methodology that would be imposed
on all state commissions. Finally, Missouri PSC contends that an
interpretation of section 1275(b) giving Commission-approved cost
allocations preemptive effect would also be contrary to the clear
language contained within section 1275(c), which provides that:
``Nothing in this section shall affect the authority of the Commission
or a state commission under other applicable law.'' Since state
commissions have state law authority to set retail rates, including
authority to disallow purchase costs or sales prices deemed
unreasonable or imprudent, section 1275(c) on its face protects the
state commissions from any asserted preemptive effect of a Commission
allocation under section 1275(b).\183\
---------------------------------------------------------------------------
\181\ NARUC Comments at 2.
\182\ Missouri PSC Comments at 9.
\183\ Id. at 11-12. See also Progress Energy Comments at 9.
---------------------------------------------------------------------------
177. By contrast, Xcel and NiSource contend that any Commission-
approved cost allocations under section 1275 will necessarily preempt
state determinations. Xcel argues that it would negate the intent of
Congress to give the Commission the authority to review these
allocations if state commissions could undertake their own cost
allocations and urges the Commission to avoid any kind of actions or
statements that would support the argument that the preemptive effect
of section 1275 is dependent on the form of filing of service
agreements with the Commission.\184\ NiSource states that it fails to
see how the Commission can approve service company cost allocations
that will apply to entities across multiple states if one of these
state commissions can then simply refuse to accept the Commission's
cost allocation as binding. For this reason, NiSource requests that the
Commission needs to provide certainty in the final rule that a
Commission-approved cost allocation is binding on the states.\185\
---------------------------------------------------------------------------
\184\ Xcel Reply Comments at 5-6.
\185\ NiSource Reply Comments at 7.
---------------------------------------------------------------------------
178. Dominion and EEI contend that the primary situation in which
the Commission would need to impose a specific methodology would be a
situation in which a multi-state holding company system finds that all
state commissions do not approve a single allocation agreement. In such
cases, the multi-state holding company system would apply to the
Commission to impose consistent requirements that would eliminate the
possibility of trapped costs.\186\
---------------------------------------------------------------------------
\186\ Dominion Comments at 18-19, EEI Comments at 25-26.
---------------------------------------------------------------------------
Commission Determination
179. In response to APPA/NRECA's concerns regarding the ``organized
specifically'' language, we clarify that we do not interpret this to
allow a cost allocation to escape review if the associate company later
takes on additional responsibilities. In response to the comments from
MBIA Insurance, the Commission has authority to review any intra-system
costs to any jurisdictional company under FPA and NGA authority.
180. In response to the requests for clarification of the potential
preemptive effect of section 1264 and the Commission's regulations
thereunder, we believe that issues related to preemption are more
appropriately addressed on a case-by-case basis to give the Commission
the opportunity to consider the potential preemptive effect of section
1264 in specific circumstances. However, we anticipate that such issues
would arise only in unusual circumstances.
5. Single-State Holding Company Systems and Other Classes of Transactions
181. Section 1275(d) of EPAct 2005 directs the Commission to issue
rules no later than four months after the date of enactment of EPAct
2005 to exempt from the requirements of section 1275 (service
allocation requests by holding
[[Page 75618]]
company systems or state commission) ``any company in a holding company
system whose public utility operations are confined substantially to a
single state'' and any other class of transactions that the Commission
finds are not relevant to the jurisdictional rates of a public utility.
We interpreted this to exempt single-state holding companies and sought
comments on how the Commission should define ``confined substantially
to a single state.''
182. While section 1275(d) states that companies in single-state
holding company systems are exempt from the ``requirements'' of section
1275, section 1275 does not impose any requirements on holding company
systems or companies within these systems, but rather grants holding
company systems and relevant state commissions the right to obtain
Commission review and authorization of cost allocations. Instead, the
only requirements in section 1275 are directed toward the Commission,
in particular that ``the Commission shall review and authorize'' cost
allocations if asked to do so by the holding company system or the
relevant state commission. Based on the structure of section 1275, we
suggested that the most reasonable interpretation of the exemption in
section 1275(d) is that Congress intended to deny single-state holding
company systems and state commissions having jurisdiction over a public
utility in such systems the right to obtain Commission review of cost
allocations pursuant to section 1275. Accordingly, we proposed to
reflect this limitation by excluding single-state holding company
systems from the scope of Commission review under section 366.5(b) of
the Commission's regulations. The Commission invited comments on this
interpretation of section 1275(d).
a. Definition of Single-State Holding Company System Exemption
Comments
183. Some commenters agree with the Commission's interpretation
that section 1275(d) exempts single-state holding company systems whose
public utilities operations are confined substantially to a single
state (i.e., all of the holding companies' public utility affiliates or
subsidiaries operate principally in a single state), whereas other
commenters (as discussed below) interpret the exemption to apply only
to individual ``companies'' within the holding company system, i.e.,
where the individual public utility, operating primarily in a single state.
184. A number of commenters who agree with the Commission's
interpretation also suggest various modifications to the scope of the
single-state holding company exemption and propose definitions of the
phrase ``confined substantially to a single state.'' EEI suggests that
the Commission follow SEC practice and precedent in interpreting this
exemption, in particular, section 3(a)(1) of PUHCA 1935 which provides
an exemption for intrastate holding companies. According to EEI, under
current SEC practice, a holding company will qualify for the intrastate
exemption if it derives no more than approximately 13 percent of its
utility revenues from out-of-state public utility company operations.
EEI further suggests that, in administering this exemption, the
Commission should follow current SEC practice and require the annual
submission of information in Part 3 of Form U-3A-2 by companies seeking
an exemption under section 1275(d).\187\ Scottish Power also agrees
that Congress intended to deny single-state holding company systems and
relevant state commissions the right to obtain Commission review of
cost allocations pursuant to section 1275 and urges the Commission to
clearly reflect this limitation by excluding single-state holding
company systems from the scope of Commission review under section
366.5(b) of the Commission's regulations.\188\
---------------------------------------------------------------------------
\187\ EEI Comments at 27-28. See also MidAmerican Comments at 11.
\188\ Scottish Power Comments at 11.
---------------------------------------------------------------------------
185. NARUC submits that the exemption should apply to any company
in a holding company system whose public utility operations are
confined substantially to a single state, rather than applying the
exemption to the holding company system that is confined substantially
to a single state. Thus, the relevant inquiry should involve an
analysis of the extent to which the individual company operates in a
single state rather than the extent to which the holding company system
is predominately single-state in nature.\189\ NARUC further asserts
that the Commission should follow the SEC's interpretation of this
single-state holding company exemption under PUHCA 1935. Consistent
with this precedent, NARUC proposes that, if a company in a holding
company system whose public utility operation derives 70 percent or
more of its gross utility operating revenues from within a single
state, that individual company should be considered exempt from section
1275 and any related Commission regulations.\190\ NiSource supports the
70 percent threshold because, first, it would be unusual for a
traditional public utility that has its physical operations in one
state to derive more than 30 percent of its gross utility operating
revenues from outside that state. Second, NARUC's proposed standard
correctly captures the statutory language of section 1275(d); whereas
the Commission's proposed language in proposed section 366.5(c) of the
NOPR is, at best, ambiguous.\191\
---------------------------------------------------------------------------
\189\ NARUC Comments at 12-13.
\190\ Id. See also E.ON/LG&E Energy Comments at 18-19 (the
standard should be whether 80 percent or more of the retail
customers served by the public utilities in the holding company
system are located within a single state).
\191\ NiSource Comments at 9.
---------------------------------------------------------------------------
186. Commenters also suggested revisions to the Commission's
proposed regulatory text in section 366.5. NiSource notes that the
current language can be read so that a holding company with operations
in multiple states falls under section 1275(b) even if its public
utility is confined substantially (or entirely) to a single state.
NiSource urges the Commission to modify the first sentence in section
366.5(c) to read that ``any company in a holding company system whose
public utility operations are confined substantially to a single state,
as defined herein, is exempt from paragraph (b) of this section.''
\192\ Santa Clara and TANC state that, in light of the complexities of
effective state oversight and regulations of holding companies, the
Commission should interpret the definition of single-state strictly and
narrowly to prevent creeping variations from the letter and spirit of
the exemption, and avoid a gap in effective regulation of multi-state
utility holding company systems. Santa Clara and TANC therefore urge
the Commission to reevaluate its interpretation of the single-state
holding company exemption from Commission review under section
1275.\193\ Ameren argues that the focus of the term ``confined
substantially to a single state'' should be on the state or states in
which a holding company system is subject to retail rate regulation
since there are no ``captive'' customers who could be harmed in a state
where the public utility does not have cost-based rates.\194\ Finally,
Public Citizen contends that the single-state exemption requires that
both a public utility and its holding
[[Page 75619]]
company primarily operate in a single state, so that the state is
capable of regulating the holding company, as well as the public
utility, under state law.\195\
---------------------------------------------------------------------------
\192\ Id. NiSource further states that the final rule should
make clear that section 1275 applies only to traditional public
utilities. In addition, if a traditional public utility engages in
wholesale sales beyond its service territory, such sales should not
render the utility subject to section 1275.
\193\ Santa Clara Comments at 14-15, TANC Comments at 14-15.
\194\ Ameren Comments at 18.
\195\ Public Citizen Comments at 13.
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Commission Determination
187. Despite the ambiguous language of section 1275(d), we believe
that the most reasonable interpretation of section 1275(b) and (d)
together is that section 1275(b) is designed to offer this Commission
as a forum for holding company systems and state commissions to obtain
cost allocations within holding companies whose public utility
operations are not confined substantially to a single state.
Specifically, section 1275(b) is designed to allow multi-state holding
companies, or the regulatory agencies of states in which the holding
company's public utility subsidiaries operate, to obtain Commission
review and authorization of cost allocations. However, Congress in
section 1275(d) does not permit single-state holding companies to take
advantage of the procedures in section 1275(b).\196\ This means that,
if a holding company has several public utility subsidiaries operating
in different states, even if the individual subsidiaries' businesses
are each confined substantially to a single state, the holding company
itself does not confine its public utility operations to a single
state, and therefore, the exemption does not apply. On the other hand,
if the holding company has multiple non-utility subsidiaries operating
in more than one state, but one or more public utility subsidiaries
that all operate primarily in the same state, the exemption would apply.
---------------------------------------------------------------------------
\196\ With respect to NARUC's alternative interpretation of the
scope of this exemption, we note that the phrase ``whose public
utility operations are confined substantially to a single state''
directly follows, and thus modifies, ``holding company system''
rather than ``company.'' This interpretation is consistent with the
structure of section 1275(b) which provides the election to the
holding company system, rather than individual companies within it.
---------------------------------------------------------------------------
188. Several commenters agree that a holding company should be
considered to be a single-state holding company if it complies with
current SEC practice on granting a similar exemption under PUHCA 1935,
which requires that a certain percentage of public-utility revenues be
derived from operations within a single state. We believe it is
reasonable to adopt a standard that is consistent with SEC rules and
will define a single-state holding company as one that does not derive
more than 13 percent of its public-utility revenues from outside a
single state.
189. We agree with several commenters that the relevant analysis
should be whether a holding company's regulated public utility
operations are confined substantially to a single state, not whether
the holding company itself is confined substantially to a single state.
As discussed above, we interpret the single-state holding company
exemption in section 1275(d) to apply in cases where a holding company
has multiple non-utility subsidiaries operating in more than one state,
but one public utility subsidiary that operates primarily in a single
state. In such a case, the holding companies' public utility operations
would be subject to the jurisdiction of a single state commission,
while the holding companies' operations would not. Accordingly, we find
that Public Citizen's interpretation is inconsistent with the text of
section 1275(d).
b. Other Classes of Transactions That Should Be Exempted
190. In the NOPR, we concluded that an exemption under section
1275(d) forecloses Commission review under section 1275(b). In section
366.5(c) of the Commission's regulations, we proposed to establish a
procedure by which the Commission, either upon petition for declaratory
order or upon its own motion, may exclude from the scope of Commission
review and authorization under section 366.5(b) any class of
transactions that we determine are not relevant to the jurisdictional
rates of a public utility. The Commission invited comments as to other
classes of transactions that, pursuant to section 1275(d), should be
exempted from the requirements of section 1275.
Comments
191. No comments were received on this subject. Accordingly, we
will not at this time establish any blanket exemptions for certain
classes of transactions.
6. Previously Authorized Activities
192. Section 1271 of EPAct 2005 states essentially that a person
may continue to engage in activities or transactions authorized by rule
or order as of the date of enactment of EPAct 2005 if that person
continues to comply with the terms of the authorization. In the NOPR,
the Commission proposed to reflect this statutory provision in section
366.6 of the Commission's regulations. The Commission also proposed to
require that, if any such activities are challenged in a formal
Commission proceeding, the person claiming prior authorization shall be
required to provide the full text of any such authorization (whether by
rule, order, or letter) and the application(s) or pleading(s)
underlying such authorization (whether by rule, order, or letter).
193. A number of commenters have noted that proposed section 366.6
states that persons will be able to continue to engage in activities or
transactions authorized under PUHCA 2005, and that it should instead
refer to PUHCA 1935. In response to the comments, we have corrected
this error in the regulations adopted here.
Comments
194. The majority of the comments supported the Commission's
proposal to allow entities to rely on SEC orders, in particular, SEC
financing authorizations.\197\ For example, Dominion and EEI note that,
with the repeal of section 318 of the FPA, many additional public
utilities will become subject to Commission jurisdiction under section
204 and that, unless registered holding company public utility
subsidiaries can rely on their current SEC orders, it will be necessary
for them to apply immediately for Commission authorization under
section 204 of the FPA. According to Dominion and EEI, this would
create a substantial burden for the holding companies and their public
utility subsidiaries and could also lead to a surge in section 204
applications at precisely the time that the Commission is burdened with
implementing its new duties under EPAct 2005. Dominion and EEI thus
recommend that the Commission in its rulemaking make a finding under
section 204 of the FPA authorizing holding company public utility
subsidiaries, at their option, to issue securities and assume
liabilities following the effective date of PUHCA 2005, provided that
they comply with the terms of their SEC financing authorization.
Dominion and EEI further recommend that this authorization continue
through the later of December 31, 2007 or the date on which the SEC
order is set to expire.\198\
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\197\ See, e.g., Cinergy Comments at 25-27, FirstEnergy Comments
at 16-17, National Grid Comments at 7-8, Scottish Power Comments at
12, Xcel Comments at 6.
\198\ Dominion Comments at 20-21, EEI Comments at 29-30.
---------------------------------------------------------------------------
195. EEI further suggests that, to the degree it deems necessary,
the Commission could condition its acceptance of SEC financing
authorizations on specific requirements related to the provisions of
FPA section 204, such as the restrictions on secured and unsecured debt
set forth in Westar
[[Page 75620]]
Energy, Inc.\199\ However, if the Westar or other conditions are
imposed, EEI contends that they should apply prospectively only and not
to securities issued prior to February 8, 2006.\200\
---------------------------------------------------------------------------
\199\ 102 FERC ] 61,186 (2003), order rescinding authorization,
104 FERC ] 61,018 (Westar).
\200\ EEI Comments at 30.
---------------------------------------------------------------------------
196. Entergy supports the Commission's proposed interpretation of
the savings provision in section 1271, but asserts that there are
several technical concerns regarding the manner in which the proposed
rule is drafted that, if not corrected, may prevent the rule from
achieving its intended purpose. Entergy urges the Commission to clarify
the condition in the proposed rules insofar as it provides authority to
continue to engage in ``activities or transactions'' approved by the
SEC ``[u]nless, otherwise provided by Commission rule or order.''
Entergy inquires if, for example, a Commission section 204 financing
order imposes a condition that is not present in an existing SEC
financing order issued to another public utility under PUHCA 1935, can
the other public utility continue to rely on its PUHCA 1935 order or is
the applicability of the saving provision negated by the referenced
condition? Similarly, Entergy asserts that there may be a question
whether the ``unless otherwise provided language'' will necessitate
compliance with the requirements of Part 34 of the Commission's
regulations or other regulatory conditions or requirements adopted by
the Commission, to the extent that such requirements are absent from an
existing PUHCA 1935 financing order (which otherwise would continue in
effect beyond the PUHCA 1935 repeal date as a result of the saving
provision).\201\
---------------------------------------------------------------------------
\201\ Entergy Comments at 12-13.
---------------------------------------------------------------------------
197. Entergy also seeks clarification as to the statement in the
NOPR that existing PUHCA 1935 authorizations are to remain ``in effect
for the period of time provided in such authorization'' with respect to
authorizations that do not contain a specified expiration date, in
particular, orders authorizing creation of service companies, which
typically do not reference any expiration date. Entergy recommends that
authorizations granted by the SEC under PUHCA 1935 should remain in
effect after repeal, unless and until such time as such authorization
would otherwise expire under the applicable PUHCA 1935 order, rule or
statutory provision, or until such time as the Commission issues a new
order expressly modifying the authorization previously granted to the
applicable company by the SEC under PUHCA 1935.\202\
---------------------------------------------------------------------------
\202\ Id. at 13-14.
---------------------------------------------------------------------------
198. Finally, Entergy requests clarification of the statement in
the NOPR that such authorizations will remain effective only ``so long
as that person continues to comply with the terms of such
authorization.'' According to Entergy, many orders issued by the SEC
require periodic reporting to the SEC of financing transactions that
are consummated pursuant to the authorization set forth in the order,
so the question arises as to whether such reporting requirements will
be considered ``terms'' of the PUHCA 1935 authorization that must be
satisfied in order to continue to engage in the SEC-approved financing
transactions subsequent to the February 8, 2006. Entergy requests that
the Commission clarify that following February 8, 2006, such reports
(originally required to be filed with the SEC pursuant to Rule 24,
adopted under PUHCA 1935) are to be filed with the Commission, rather
than with the SEC.\203\
---------------------------------------------------------------------------
\203\ Id. See also NiSource Comments at 14-15 (the Commission
should clarify that only the SEC's conditions and terms apply,
unless the Commission states otherwise in a specific order).
---------------------------------------------------------------------------
199. PacifiCorp requests that the Commission clarify that SEC
financing authorizations will be preserved for a sufficient period of
time to permit a reasonable transition period (through December 31,
2007) to the requirements of section 204 for both utilities and the
Commission. PacifiCorp further requests that the Commission provide a
mechanism for such further approvals until February 8, 2006, and to
preserve tax treatment by retaining the right of holding companies to
avail themselves of Internal Revenue Code section 1081, which section
1271 also preserves.\204\
---------------------------------------------------------------------------
\204\ PacifiCorp Comments at 7-8.
---------------------------------------------------------------------------
200. MGTC requests that the Commission clarify that prior status
determinations by the SEC remain valid and are grandfathered by the
operation of section 1271, so that, for example, if a person was
declared not to be a ``gas utility company'' by the SEC, and the facts
on which that determination was made have not materially changed, that
person will not be a ``natural gas company'' under PUHCA 2005 and
implementing regulations. MGTC further contends that, if the Commission
is not willing at this time to issue a broad declaration that prior SEC
status determinations are grandfathered by section 1271, the Commission
should nonetheless hold that a person that the SEC found was not a
``gas utility company'' under PUHCA 1935 will not be required to comply
with the Commission's new regulations until the Commission makes an
affirmative finding that the person is a ``natural gas utility'' under
PUHCA 2005.\205\
---------------------------------------------------------------------------
\205\ MGTC Reply Comments at 1, 4. See also Mittal Steel Reply
Comments at 2-5.
---------------------------------------------------------------------------
201. Northeast Utilities Service Company (Northeast Utilities)
notes that some registered holding companies may have obtained
amendments to existing SEC orders or new orders after August 8, 2005,
i.e., date of enactment of EPAct 2005, and thus urges the Commission to
make clear that such modified and/or new orders should also be
grandfathered, if possible.\206\
---------------------------------------------------------------------------
\206\ Northeast Utilities Comments at 6.
---------------------------------------------------------------------------
202. Some commenters, however, emphasized that section 1271 of
EPAct 2005 does not insulate activities previously approved by the SEC
from Commission review under the FPA or NGA.\207\ According to APPA/
NRECA, the savings provision in section 1271(a) of EPAct 2005, which
allows entities with SEC approvals to continue engaging in the
transactions so approved, does not diminish the Commission's authority
to establish conditions that ensure just and reasonable rates under the
FPA or NGA.\208\ APPA/NRECA further emphasize that any interpretation
of section 1271(a) that would limit the Commission's ability to review
the effect of particular activities or transactions on Commission-
jurisdictional rates would be inconsistent with section 1271(b), which
makes clear that section 1271(a) does not circumscribe in any way the
Commission's regulatory authority under the FPA and the NGA.\209\
Similarly, Santa Clara notes that it might be argued that a conflict
between section 1271(a) and 1271(b) arises when SEC rules under PUHCA
1935 require different or less rigorous standards than the Commission's
rules under the FPA, e.g. SEC at-cost standard vs. the Commission's
market standard. Santa Clara urges the Commission to clarify that all
activities, including those previously authorized by the SEC and the
Commission itself, are subject to review, rules, regulations and policy
administered independently by the Commission under the FPA.\210\
---------------------------------------------------------------------------
\207\ See, e.g., Arkansas PSC Comments at 7, Missouri PSC
Comments at 14-15.
\208\ APPA/NRECA Comments at 4. See also Santa Clara Comments at
17, TANC Comments at 17.
\209\ Id. at 13-14.
\210\ Santa Clara Comments at 18-19.
---------------------------------------------------------------------------
203. Finally, Oklahoma Corporation Commission suggests that the
Commission should amend proposed section 366.6 to include language that
clearly articulates that said person or
[[Page 75621]]
entity should also bear the burden of proof that that person or entity
has complied with the rule, order, or letter.\211\
---------------------------------------------------------------------------
\211\ Oklahoma Corporation Commission Comments at 7.
---------------------------------------------------------------------------
Commission Determination
204. In the NOPR, we noted that the repeal of PUHCA 1935 and
section 318 of the FPA would give the Commission jurisdiction under
section 204 of the FPA over certain issuances of securities and
assumptions of liabilities by companies within holding company systems
that are currently subject to the jurisdiction of the SEC. Furthermore,
Congress expanded the Commission's jurisdiction over holding company
acquisitions of securities through its amendments to section 203 of the
FPA in section 1289 of EPAct 2005. Finally, Congress explicitly stated
in section 1271(b) that nothing in PUHCA 2005 limits the Commission's
authority under the FPA and the NGA. Thus, it is clear that in EPAct
2005 Congress intended to preserve, and in some ways expand, the
Commission's authority over issuances of securities, assumptions of
liabilities by companies within holding company systems, and holding
company acquisitions of securities. However, Congress also included in
PUHCA 2005 a transition provision, which allows persons to continue to
rely on previously-granted SEC authorizations.
205. We will adopt section 366.6 as proposed in the NOPR and allow
entities to continue to rely on SEC orders, including SEC financing
authorizations. We will also grant a number of the clarifications with
respect to SEC financing authorizations requested by commenters.
However, the Commission will require all holding companies that intend
to rely on their SEC financing authorizations to issue securities,
assume liabilities, or engage in securities transactions that would
otherwise be reportable under section 203 of the FPA, as amended by
EPAct 2005, or section 204 of the FPA to file with the Commission a
copy of these SEC orders by the effective date of PUHCA 2005. The
filing of these orders will permit the Commission to maintain effective
oversight of the previously-authorized activities and transactions
that, due to the repeal of PUHCA 1935, are now subject to the
Commission's jurisdiction under the FPA.
206. Section 1271(a) states that nothing in PUHCA 2005 or PUHCA
1935 and the rules, regulations, and orders thereunder, prohibits a
person from engaging in or continuing to engage in activities or
transactions in which it is legally engaged or authorized to engage on
the date of enactment of PUHCA 2005, if that person continues to comply
with the terms (other than an expiration date or termination date) of
any such authorization. This provision, and section 366.6 of our
regulations that we adopt herein, permit persons to rely on the SEC
multi-year financing authorizations for the period of time provided in
that authorization. Accordingly, we clarify that, to the extent
companies in a holding company system engage in authorized financing
transactions, in compliance with the terms of that authorization, we
will not require those entities to seek additional authorization under
sections 203 or 204 at this time.
207. We find that EEI's concerns regarding Westar are beyond the
scope of this rulemaking and, therefore, we will not address them here.
Instead, the Commission will consider whether to place Westar
conditions upon future applications on a case-by-case basis.
208. Section 1271(a) permits a person to engage in previously-
authorized activities if that person continues to comply with the terms
of that authorization, other than an expiration date or termination
date. We agree that it is necessary to provide a reasonable transition
period for entities subject to the requirements of PUHCA 2005 and,
therefore, we agree with Dominion and EEI that these authorizations
should continue through the later of December 31, 2007 or the date on
which the SEC order is set to expire and with PacifiCorp that section
204 authorizations should not be required until December 31, 2007,
without regard to the duration of the SEC authorization. We conclude
that it is reasonable to permit entities to rely on their SEC financing
authorizations for the period of their duration or through December 31,
2007, whichever is later. Similarly, with respect to Entergy's request
for clarification regarding authorizations for the formation of service
companies, which do not have a termination date, we conclude that PUHCA
2005 does not grant the Commission authority over service company
formation and thus Commission authorization is not required.
209. We will also grant Entergy's clarification that, after the
effective date of PUHCA 2005 (i.e., February 8, 2006), for SEC orders
that require periodic reporting to the SEC of financing transactions
that are consummated pursuant to the authorization set forth in the
order, such reports are to be filed with the Commission, rather than
with the SEC, so long as the company continues to rely on such
authorization. We do not think it is reasonable to assume that Congress
intended to carry forward the SEC's financing authorizations without
the specific reports required to be submitted as a condition of those
authorizations. More importantly, the receipt of such reports will
allow the Commission to perform its oversight duties, while allowing
the entities to continue to rely on these SEC financing authorizations
for a reasonable transition period.
210. PacifiCorp appears to be requesting that the Commission grant
further financing approvals under PUHCA 1935 until February 8, 2006,
since it could not do so under PUHCA 2005, which does not take effect
before that date. While the Commission has no authority to take any
action under PUHCA 1935, which was entrusted to the SEC, to the extent
necessary to permit continuity of financing authorizations or to
preserve tax treatment referenced in section 1271(c) of PUHCA
2005,\212\ the Commission will entertain requests for financing
approvals prior to February 8, 2006, but will be able to make any such
approvals effective only upon the effective date of PUHCA 2005,
February 8, 2006.
---------------------------------------------------------------------------
\212\ Section 1271(c) of PUHCA 2005 states that such tax
treatment shall not be affected in any manner due to the repeal of
PUHCA 1935 and enactment of PUHCA 2005.
---------------------------------------------------------------------------
211. As noted, section 1271(c) explicitly states that tax treatment
under section 1081 of the Internal Revenue Code of 1986 as a result of
transactions ordered in compliance with PUHCA 1935 shall not be
affected in any manner due to the repeal of PUHCA 1935 and the
enactment of PUHCA 2005, and we will comply with this provision insofar
as such tax treatment is reflected in jurisdictional rates or in the
Commission's Uniform System of Accounts and the SEC's Uniform System of
Accounts, as they exist on the day before the date of enactment of
PUHCA 2005.
212. We will also grant Northeast Utilities' request that section
1271 will apply to modifications of SEC orders made between the date of
enactment and the effective date of PUHCA 2005.
213. We will also grant the clarification requested by APPA/NRECA
and others that transactions entered into pursuant to prior SEC
authorizations are not insulated from Commission review under the FPA
and the NGA. Previously, certain securities transactions were exempted
from Commission jurisdiction due to section 318 of the FPA, which
Congress has repealed. While we agree that section 1271(a) permits
companies within
[[Page 75622]]
holding company systems to continue to rely on SEC financing
authorizations, this authorization simply permits them to engage in
such transactions without prior Commission approval under sections 203
and 204 of the FPA, but does not insulate them from our review of
jurisdictional rates under sections 205 and 206 of the FPA and sections
4 and 5 of the NGA.
214. We will not adopt Oklahoma Corporation Commission's suggestion
that we amend section 366.6 to include language that clearly
articulates that said person or entity should also bear the burden of
proof that that person or entity has complied with the rule, order, or
letter. We find that such an amendment is unnecessary at this time.
7. Exempt Wholesale Generators and Foreign Utility Companies
215. EPAct 2005 repeals PUHCA 1935 in its entirety, including
section 32, which requires the Commission to make EWG determinations on
a case-by-case basis, upon application. Although the definitional
section of PUHCA 2005 references section 32 of PUHCA 1935, the Congress
nevertheless repealed section 32 in its entirety and did not re-enact
that provision in the new PUHCA 2005. The Commission stated in the NOPR
that it believed that the most reasonable interpretation of EPAct 2005,
given the omission of section 32 in the new PUHCA 2005, is that
Congress did not intend the Commission to continue to make case-by-case
determinations of EWG status in the future (i.e., after the effective
date of PUHCA 2005). Rather, we stated in the NOPR that the most
reasonable interpretation of the statute is that only those entities
that are holding companies with respect to persons granted EWG status
before the repeal of PUHCA 1935 would qualify for an exemption from the
new federal books and records access requirements under proposed
section 366.3(a)(2) of the Commission's regulations. Accordingly, we
proposed to remove Part 365 of the Commission's regulations, which set
forth the filing requirements and ministerial procedures for persons
seeking EWG status under section 32 of PUHCA 1935, and we invited
comments on whether we should do so.
216. We further noted that the benefit of EWG status under PUHCA
1935 was that entities that the Commission determined to have met the
definition of EWG were exempted from the myriad requirements of PUHCA
1935. The principal benefit of being an EWG under PUHCA 2005 is
exemption from the new federal books and records access requirements.
To the extent that these new federal books and records access
requirements add to the Commission's existing very broad books and
records access authority under FPA section 301 and NGA section 8, we
concluded that our interpretation served to err on the side of greater
customer protection.
217. We also noted that, in any event, entities that qualified as
EWGs under PUHCA 1935 were not exempted from the Commission's authority
under the FPA if they met the FPA definition of ``public utility,''
including the very broad access to books and records provisions of FPA
section 301. Nor will they be exempt from these FPA provisions as a
result of PUHCA 2005.
218. In addition, we noted that Congress repealed section 33 of
PUHCA 1935, which addresses FUCOs. As with EWGs, we stated our belief
that Congress intended to limit the exemption for persons that are
holding companies with respect to FUCOs to those attaining FUCO status
before repeal of PUHCA 1935. The Commission invited comments as to this
interpretation of EPAct 2005.
Comments
219. Some commenters expressed support for the Commission's
decision to no longer make determinations of EWG status. These
commenters note that, while Congress repealed the section of PUHCA 1935
addressing EWGs, the exemption in subsection 1266(a)(2) refers to these
repealed designations, they have to apply to something, and they agree
with the Commission's position that the exemptions must apply only to
the existing EWGs and FUCOs.\213\ Public Citizen agrees that
grandfathered EWGs have a reliance argument for maintaining their
status, but disagrees with extending such grandfathering to new
entities that are now aware that the distinction no longer exists.
Furthermore, Public Citizen states that grandfathered EWGs must
continue to comply with EWG requirements to maintain their
grandfathered EWG status and that they should be required to make an
annual filing with the Commission stating how each continues to comply
with the original terms of its EWG or FUCO exemptions.\214\
---------------------------------------------------------------------------
\213\ APP/NRECA Comments at 21, Georgia PSC Comments at 3, Santa
Clara Comments at 18, TANC Comments at 18.
\214\ Public Citizen Comments at 5.
---------------------------------------------------------------------------
220. The majority of commenters, however, opposed the Commission's
proposal to stop making determinations of EWG status as contrary to
Congress' intent and the plain meaning of the statute.\215\ According
to Calpine, by incorporating the definition of EWG into PUHCA 2005 and
relying on that definition to permit holding companies with respect to
only EWGs, QFs, and/or FUCOs to be exempt from the federal books and
records access requirement, Congress recognized the continuing need for
EWG determinations after the repeal of PUHCA 1935 takes effect; nowhere
in EPAct 2005 is the exemption limited to holding companies with EWGs
prior to the repeal of PUHCA 1935 takes effect. Calpine thus contends
that, if Congress wanted to restrict EWG determinations to a certain
time period, it knew how to do so, but chose not to.\216\ Similarly,
Dominion and EEI argue that, by preserving the meaning of the term
``exempt wholesale generator'' found in PUHCA 1935, Congress in essence
preserved section 32(a) of PUHCA 1935, which defines an EWG, in part,
as a company that the Commission determines to be an EWG. Thus,
according to Dominion and EEI, the Commission's case-by-case
determination process is incorporated directly in the definition.\217\
Morgan Stanley argues that the Commission's interpretation effectively
renders superfluous the EWG exemption contained in EPAct 2005.\218\
---------------------------------------------------------------------------
\215\ See, e.g., Coral Power/Windenergy Comments at 8, EPSA Comments
at 16-17, Goldman Sachs Comments at 5, PPM Energy Comments at 3-4.
\216\ Calpine Comments at 5-6 (quoting section 1253(a) of EPAct
2005 definign ``existing qualifying cogeneration facility'').
\217\ Dominion Comments at 22-23, EEI Comments at 32.
\218\ Morgan Stanley Comments at 7.
---------------------------------------------------------------------------
221. Other commenters believe that the Commission's interpretation
is not a permissible one because the decision to eliminate Part 365 and
future EWG determinations would produce unreasonable or unduly
discriminatory results. Calpine argues that, under the Commission's
interpretation of the statute, if Calpine added one more wholesale
generator that would have been an EWG under Part 365, Calpine and its
subsidiaries will lose the exemption and thus it is not reasonable for
the addition of one wholesale generator that is identical to Calpine's
EWG affiliates in every respect but one (i.e., EWG status), to result
in all of these companies and their affiliates being subject to the
books and records access requirements and SEC rules, particularly when
these companies were exempt from regulation under PUHCA 1935 and have
no captive customers in need of protection.\219\ Further, Calpine
[[Page 75623]]
asserts that the use of proposed section 366.3(b), which would provide
for entities to file for a petition for a declaratory order that they
are exempt from the Commission's books and records requirements, is not
an adequate alternative for Calpine due to the high costs of filing
such petitions.\220\ Morgan Stanley further argues that comments
supporting the Commission's proposed deletion of Part 365 offer no
substantive basis for why such a course of action comports with
legislative intent, nor do they explain how it will not chill investor
confidence or dissuade capital from entering the wholesale generation
sector.\221\ Finally, Dominion and EEI note that a number of states
provide exemptions from state laws based on EWG status and that failure
to make additional EWG determinations would also deprive those
companies of the benefits of those laws.\222\
---------------------------------------------------------------------------
\219\ Calpine Comments at 6. See also Coral Power/Shall
WindEnergy Comments at 8.
\220\ Id. at 10-11.
\221\ Morgan Stanley Reply Comments at 2-3.
\222\ Dominion Comments at 23, EEI Comments at 33.
---------------------------------------------------------------------------
222. With respect to determinations of FUCO status, Calpine
disagrees with the Commission's proposal in the NOPR. Calpine asserts
that, by incorporating the definition of FUCO into PUHCA 2005 and
relying on that definition to permit holding companies with respect to
only EWGs, QFs, and/or FUCOs to be exempt from the federal books and
records access requirement, Congress recognized the continuing need for
FUCOs after the repeal of PUHCA 1935 takes effect. As with EWGs,
Calpine contends that it is not reasonable for the addition of a single
foreign subsidiary having no potential to impact the operations of its
domestic affiliates to subject such affiliates to the books and records
access requirement and the SEC rules when they were not subject to such
rules under PUHCA 1935.\223\
---------------------------------------------------------------------------
\223\ Calpine Comments at 8-9. See also EPSA Comments at 16-17,
PPM Comments at 3.
---------------------------------------------------------------------------
223. EEI proposes that the Commission should exempt FUCOs from the
requirement that they maintain their books and records under proposed
Rule 366.2(e), but that they otherwise should be subject to the books
and records access provisions of section 366.2 of the Commission's
proposed regulations. According to EEI, the Commission should continue
to have access to FUCO records to the extent that such records are
relevant to the costs incurred by a public utility or natural gas
company that is an associate of a holding company and necessary and
appropriate for the proper exercise of the Commission's statutory
charge under the FPA and NGA with respect to jurisdictional rates.\224\
---------------------------------------------------------------------------
\224\ EEI Comments at 34. See also National Grid Comments at 5-
8. National Grid also argues that extending the Commission's books
and records mandates to FUCOs would subject them to conflicting
mandates resulting in maintaining separate duplicative books and
inappropriately expand the extraterritorial impact of PUHCA 2005
without any benefit to U.S. consumers.
---------------------------------------------------------------------------
224. Some commenters suggested that the Commission should adopt a
self-certification process similar process to that used by the SEC. For
example, Scottish Power argues that FUCOs that operate exclusively
outside of the U.S. should not be subject to Commission oversight. The
Commission should continue the SEC's practice of allowing for the
creation of FUCOs by submittal of a notice filing. FUCOs and their
subsidiary operations are generally separate from that of the domestic
utility operations and therefore would not bear in any way on the
jurisdiction rates of such utility company.\225\
---------------------------------------------------------------------------
\225\ Scottish Power Comments at 14. See also EEI Comments at
34, Public Citizen Comments at 6.
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Commission Determination
225. Having again reviewed the ambiguities in statutory
construction, and balancing the facts that Congress repealed section 32
of PUHCA 1935 in its entirety, yet referred to section 32 in the
definitional sections of PUHCA 2005, we conclude that it is reasonable
to interpret PUHCA 2005 to allow entities to obtain EWG status under
PUHCA 2005. However, we will reject the requests from various
commenters that we retain part 365 of our regulations, which permit
only case-by-case applications for EWG status.
226. Instead, in line with the comments received from Scottish
Power and others, we will establish a self-certification process for
companies that believe they satisfy the criteria for EWG or FUCO
status. This process is similar to that used for self-certifications
for QFs under the Public Utility Regulatory Policies Act of 1978, and
is set forth in section 366.7. Section 366.7(a) provides that the owner
or operator of an EWG or FUCO, or its representative, may file with the
Commission a notice of self-certification demonstrating that it
satisfies the definition of EWG or FUCO. In the case of EWGs, the owner
or operator must also file a copy of the notice with the state
regulatory authority of each state in which the facility is located.
Notices of self-certification or self-recertification will be published
in the Federal Register. An entity filing a good faith notice of self-
certification of EWG or FUCO status will be deemed to have temporary
status upon filing. If no action is taken by the Commission within 60
days after the date of filing of a self-certification notice, the
exempt wholesale generator status or foreign utility company status
shall be deemed to have been granted. The Office of the Secretary will
periodically issue notices listing the entities whose self-
certification of EWG or FUCO status is deemed to have been granted in
the absence of Commission action to the contrary within 60 days after
the date of filing. We believe that such a self-certification of EWG
and FUCO status will be adequate in the vast majority of cases.
227. For entities that require a higher degree of legal certainty
as to their status, we will permit them to seek a Commission
determination of their EWG and FUCO status as defined under section
366.1 of the Commission's regulations. Specifically, section 366.7(b)
provides that they may seek such a determination by filing a petition
for declaratory order pursuant to Rule 207(a) of the Commission's Rules
of Practice and Procedure justifying the request for EWG or FUCO
status. These petitions will be noticed in the Federal Register. A
person filing a petition for declaratory order in good faith will be
deemed to have temporary EWG or FUCO status until the Commission takes
action to grant or deny the petition.
228. The self-certification procedure established herein, along
with the continued availability of Commission determinations of EWG and
FUCO status, ensures that the EWG and FUCO exemptions will continue to
be available to any persons who satisfy the statutory criteria.
Moreover, we note that the self-certification procedures established
herein, and advocated by various commenters, are less burdensome than
the procedures established under section 32 of PUHCA 1935.
229. We disagree with commenters such as Calpine and EEI who argue
that Congress, by incorporating the definition of EWGs and FUCOs into
PUHCA 2005, carried over the requirement from PUHCA 1935 that the
Commission make case-by-case determinations of EWG status. This
argument appears to rest on the erroneous assumption that Congress
effectively reenacted (only) section 32(a) of PUHCA 1935. Had Congress
meant to do so, it could have simply so stated in PUHCA 2005;
alternatively, it could have imported the text from section 32(a) of
PUHCA 1935, with appropriate modifications, into section 1262(6) of
EPAct 2005, as it did for many of the other definitions carried over
from PUHCA 1935. Instead, however, Congress directed that ``[t]he terms
`exempt wholesale generator' and
[[Page 75624]]
``foreign utility company'' have the same meanings as in section 32 and
33'' of PUHCA 1935 as they existed on the day prior to the date of
enactment of EPAct 2005. We believe it is a reasonable interpretation
that, even if Congress preserved the option of EWG status
determinations going forward, it did not prescribe the procedural
mechanics requiring a case-specific Commission ruling on what it means
for a person ``to be engaged directly, or indirectly through one more
affiliates * * *, and exclusively in the business of owning or
operating, all or part of one more eligible facilities and selling
electric energy at wholesale.'' Thus, we conclude that, by repealing
section 32 of PUHCA 1935, Congress left to the Commission the
discretion to prescribe the procedures for obtaining EWG status.
230. As noted earlier, with respect to FUCOs, section 33 of PUHCA
1935, as amended by EPAct 1992 provided that FUCOs would be exempt from
PUHCA 1935 and not deemed an electric utility company, but the
exemption would not apply or be effective unless relevant state
commission(s) certified that they had the authority and resources to
protect ratepayers of public utility companies associated or affiliated
with the FUCO. Given that PUHCA 2005 is largely a books and records
statute, we will waive our accounting and reporting requirements for
FUCOs. However, we will not exempt them from section 366.2 of our
regulations, which allows us to obtain access as necessary with respect
to jurisdictional rates. The case-by-case approach that we adopt here
is consistent with our precedent concerning the treatment of FUCOs
under the FPA and will allow us to ensure adequate protection of
captive customers in the United States.
8. Cross-Subsidization and Encumbrances of Utility Assets
231. In the NOPR, we noted that PUHCA 2005 is primarily a ``books
and records access'' statute and does not give the Commission any new
substantive authorities, other than the requirement in section 1275 of
EPAct 2005 that the Commission review and authorize certain non-power
goods and services cost allocations among holding company members upon
request. Nor does it give the Commission authority to pre-approve
holding company activities. Accordingly, outside the context of
reviewing a holding company transaction requiring approval under
section 203 of the FPA or a proposed issuance of securities under
section 204 of the FPA, the Commission will continue to rely primarily
on its ratemaking authorities under sections 205 and 206 of the FPA and
sections 4 and 5 of the NGA to protect jurisdictional customers against
inappropriate cross-subsidization or encumbrances of utility assets on
an ongoing basis.
232. In the NOPR, we also noted that the Commission already has in
place, pursuant to the FPA and NGA, certain reporting requirements
regarding money pools and cash management activities that affect
jurisdictional companies.\226\ Further, in the electric area, we have
policies that protect against cross-subsidization occurring as a result
of wholesale power sales between affiliates in a holding company system
as well as sales of non-power goods and services between such
affiliates.\227\ In the NOPR, we invited comment on whether, in light
of the repeal of PUHCA 1935, the Commission needs to promulgate
additional rules or to adopt additional policies to protect against
inappropriate cross-subsidization or encumbrances of utility assets,
pursuant to our authorities under the FPA and NGA. For example, we
asked whether, if it has the authority to do so, the Commission should
issue rules regarding public utility holding company diversification
into non-utility businesses. Would the Commission have authority to
promulgate such rules under its FPA or NGA ratemaking authority? Should
the Commission modify its existing cash management rules to apply not
only to public utilities, natural gas companies, and oil pipelines, but
also to include public utility holding companies? We sought comment on
these and any other related issues in order to determine whether, in
addition to the regulations being proposed herein under PUHCA 2005, the
Commission may need to consider promulgating separate, additional rules
under the FPA or the NGA.
---------------------------------------------------------------------------
\226\ Regulation of Cash Management Practices, Order No. 634, 68
FR 40500 (Jul. 8, 2003), III FERC Stats. & Regs. ] 31,145 (June 26,
2003), Order No. 634-A, 68 FR 61993 (Oct. 31, 2003), III FERC Stats.
& Regs. ] 31,152 (2003).
\227\ See Merger Policy Statement, FERC Stats. & Regs. ] 31,044
at 30,124-25. See also Heartland Energy Services, Inc., 68 FERC ]
61,223 at 62,062-65 (1994); LG&E Power Marketing Inc., 68 FERC ]
61,247 at 62,121-24 (1994).
---------------------------------------------------------------------------
Comments
233. Commenters were largely opposed to the adoption of any new
rules on cross-subsidization, encumbrances of utility assets,
diversification into non-utility businesses, or the extension of
existing cash management rules.\228\ With respect to rules on cross-
subsidization and encumbrances of utility assets, several commenters
emphasize that additional Commission rules are unnecessary because
existing Commission and state oversight is adequate.\229\ For example,
E.ON and LG&E Energy assert that it is not necessary or appropriate for
the Commission to promulgate additional rules or adopt additional
policies with respect to cross-subsidization or encumbrances of utility
assets because, with the repeal of PUHCA 1935, Congress expressed the
clear intent to eliminate the comprehensive regulation of holding
company systems which had been characterized by PUHCA 1935. In
addition, E.ON and LG&E Energy assert that current Commission and state
regulation of affiliate transactions is sufficient, emphasizing that:
(i) Affiliate transactions also are controlled and/or monitored on an
ongoing basis through codes of conduct in many states; (ii) the
Commission regulates wholesale power sales between affiliates, which is
often the largest portion of affiliate transactions activity; (iii)
under section 1275 of EPAct 2005, the Commission has additional
authority to review the allocation of non-power goods and service
transactions between service companies and public utilities; (iv) the
terms of affiliate financing transactions also are closely monitored by
the Commission and state commissions to make sure that public utility
capital costs are not inflated; (v) where state commissions do not have
jurisdiction over such issuances, Commission authorization would be
required under section 204 of the FPA; and (vi) the Commission has
jurisdiction under section 203 of the FPA over the sale, lease or
disposal of public utility facilities subject to Commission
jurisdiction and under section 204 of the FPA, the Commission must
authorize the assumption of any obligation or liability as guarantor,
indorser, surety, or otherwise in respect of any security of another
person.\230\ FirstEnergy argues that the routine review of each of the
FirstEnergy Operating Companies by independent financial rating
agencies also acts as a deterrent to inappropriate cross-
[[Page 75625]]
subsidization or establishment of unreasonable encumbrances on utility
assets.\231\ Finally, Energy East agrees that no new rules are
required, but contends that some benefit could be gained from a single,
uniform set of federal rules on cross-subsidization and affiliate abuse
and federal code of conduct to avoid potentially conflicting state-
imposed standards.\232\
---------------------------------------------------------------------------
\228\ See, e.g., Alliant Comments at 6, AEP Comments at 9-10,
Ameren Comments at 20, AGL Resources Comments at 8-9, Cinergy
Comments at 30-31, Emera Comments at 12, Entergy Comments at 14-16,
International Transmission Company Comments at 11, KeySpan Comments
at 7-8, MidAmerican Comments at 14, National Grid Comments at 31-32,
PacifiCorp Comments at 7-8, Progress Energy Comments at 8, Questar
Comments at 5-6, Southern Company Services Comments at 8, Washington
Gas & Light Comments at 5, Xcel Comments at 7, Scottish Power
Comments at 14-15.
\229\ See, e.g., EPSA Comments at 25, FirstEnergy Comments at 17-19.
\230\ E.ON/LG&E Energy Comments at 21.
\231\ FirstEnergy Comments at 19.
\232\ Energy East Comments at 14-15.
---------------------------------------------------------------------------
234. With respect to rules on diversification, several commenters
argued that the Commission lacks the statutory authority to adopt such
rules.\233\ For example, commenters argue that the SEC had authority
under section 10 and 11 of PUHCA 1935 to regulate such diversification,
but that these sections were repealed and Congress did not provide the
Commission with authority to issue these or similar rules and that the
cross-subsidization language in the PUHCA Repeal Subtitle is only a
reference to the Commission's existing authorities under the FPA, not a
new grant of authority and that the Commission already has ample
authority under sections 203, 205 and 206 of that statue to address
whether inappropriate cross-subsidization or other forms of affiliate
abuse have occurred.
---------------------------------------------------------------------------
\233\ See, e.g., Chairman Barton Reply Comments at 10-11,
Dominion Comments at 25, EEI Comments at 36, E.ON/LG&E Energy
Comments at 22, EPSA Comments at 25.
---------------------------------------------------------------------------
235. With respect to the Commission's cash management rules,
Dominion and EEI contend that there is no need to extend the
Commission's current cash management rules to apply to holding
companies. According to Dominion and EEI, the rules already effectively
apply to holding companies because, where a jurisdictional utility is a
participant in a cash management arrangement with a holding company,
that arrangement must comply with Commission cash management rules and
the agreement must be filed. The only ``extension'' of the rules would
be to require a holding company to comply with the rule in a cash
management arrangement that involved only non-utility companies. That
would be an inappropriate expansion of the Commission's authority.\234\
---------------------------------------------------------------------------
\234\ Dominion Comments at 24, EEI Comments at 35.
---------------------------------------------------------------------------
236. A number of commenters, however, argued that the Commission
should adopt additional rules to protect against the dangers of cross-
subsidization and diversification into non-utility businesses,\235\ in
particular, structural separation requirements regarding transactions
between utility and non-utility affiliates. APPA/NRECA argue that the
Commission must ensure complete structural protection, so that the
public utility's affiliation with a non-utility business causes no
additional, non-utility risk, including the following requirements: (i)
Public utility business must be conducted through corporations legally
distinct (and financially insulated) from non-utility affiliates; (ii)
public utilities must maintain books and records that are separate from
the books and records of non-utility affiliates, and must prepare
separate financial statements; (iii) public utilities must not
commingle their assets or liabilities with the assets or liabilities of
a non-utility affiliate, or pledge or encumber their assets on behalf
of a non-utility affiliate; and (iv) service or management fees charged
by a public utility's holding company parent or affiliated service
company to the public utility must not include allocations of financing
costs for entities other than the public utility, charges against
equity in other subsidiaries of the parent holding company, or
operating losses of the parent holding company or other affiliated
companies.\236\ MBIA Insurance argues that the Commission should impose
financial and corporate separation requirements regarding transactions
between utility and non-utility affiliates to adequately protect
utilities and their customers: (i) A utility company must not declare
or pay any dividend on any security of the utility if such action would
threaten the financial integrity of the utility; (ii) utilities should
have at least one independent director on their boards of directors;
(iii) non-utility affiliates should not have recourse against the
tangible or intangible assets of utility affiliates; (iv) a utility
must not cross-subsidize or shift costs from a non-utility affiliate of
the utility to the utility, and must fully disclose and fully value any
assets or services by the utility that are provided for the benefit of
a non-utility affiliate; (v) electricity and natural gas customers must
not be subject to the financial risks of non-utility diversification,
and must not be subject to rates or charges that are not reasonably
related to the provision of electricity or natural gas service.\237\
NARUC urges the Commission to prohibit holding companies from
encumbering the assets of its public utility in order to fund a
diversification program and from issuing debt or preferred securities
to pay dividends to a holding company or to making unduly risky loans
to any organization within the holding company system. Specifically,
the Commission should guard against a situation where the relationship
between a financially strong public utility and relatively weaker
affiliates has the effect of increasing the utility's cost of capital
to the detriment of customers. In the event that a public utility
became over-leveraged as a result of subsidization of the holding
company, Commission should consider taking appropriate action,
including limitations of the payment of common stock dividends from the
utility to a parent.\238\
---------------------------------------------------------------------------
\235\ See, e.g., CEOB Comments at 3, Missouri PSC Comments at
30-32, Santa Clara Comments at 21-22, TANC Comments at 21-22,
Utility Workers Comments at 3.
\236\ APPA/NRECA Comments at 34-35.
\237\ MBIA Insurance Comments at 20-24. But see EEI Reply Comments at 3.
\238\ NARUC Comments at 13-14. National Grid and NiSource assert
that NARUC has not shown that the existing protections are
ineffective and that NARUC's proposed additional reporting
requirements are unnecessary. National Grid Reply Comments at 7-8,
NiSource Reply Comments at 5.
---------------------------------------------------------------------------
237. NASUCA argues that, in the case of captive customers, the
proper structural protection would be to prohibit a utility's
affiliation with non-utility businesses, unless there is no risk
involved. If a customer has power supply options, dealings between
utilities and their non-utility affiliates could be approved if: (a)
the information on the risk is fully disclosed; (b) the potential gains
to the customer are commensurate with the risk; and (c) there can be no
possible level of harm so large as to render the utility unable to
comply with its duty to provide service reliably and economically.\239\
Finally, Ohio PUC recommends that the Commission adopt rules similar to
those found in its transition plan administrative rules, which prevent
electric utilities from issuing any security for the acquisition,
ownership, or operation of an affiliate, assuming liabilities with
respect to any security of an affiliate, or pledge, mortgage, or use as
collateral any of its assets for the benefit of an affiliate. In
addition, Ohio PUC recommends the Commission utilize the newly-
established joint federal/state board to develop ``ring-fencing'' rules
to insulate regulated assets from being the subject of cross-
collateralization with unregulated assets.\240\
---------------------------------------------------------------------------
\239\ NASUCA Comments at 11-12.
\240\ Ohio PUC Comments at 6-8. AGL Resources argues that Ohio
PUC's ring-fencing proposals are unnecessary, but that if the
Commission decides to impose additional rules, it should do so
through a collaborative process including the Commission, state
commissions, and industry participants. AGL Resources Reply Comments
at 2. See also National Grid Reply Comments at 7-8.
---------------------------------------------------------------------------
[[Page 75626]]
238. With respect to the procedure for implementing these
structural measures to protect customers against the risks of
diversification into non-utility businesses, APPA/NRECA urge the
Commission to create a procedure for evaluating a public utility's
acquisition of, or acquisition by, a non-utility business to ensure:
(a) Compliance with aforementioned limits; (b) non-interference by the
non-utility side in the management of the public utility side; and (c)
that holders of the public utility's debt, and credit rating agencies
which rate that debt, have confirmed that there is no risk of adverse
effect on their position.\241\
---------------------------------------------------------------------------
\241\ APPA/NRECA Comments at 35-36. See also NASUCA Comments at 12.
---------------------------------------------------------------------------
239. These commenters argue that the Commission has sufficient
authority to issue additional rules on cross-subsidization and
diversification. For example, Arkansas PSC contends that the Commission
has authority under sections 203, 205, and 206 of the FPA to issue such
rules.\242\ Emera argues that the Commission should use its current
authority under sections 203 and 204 of the FPA to address
international diversification. Emera thus urges the Commission to
explain in its orders authorizing public utility financing under FPA
section 204 that no public utility shall use the proceeds of any such
financing to finance the acquisition or operation of a FUCO, while
pledges of utility assets to support FUCO financings would similarly be
restricted under FPA section 203.\243\
---------------------------------------------------------------------------
\242\ Arkansas PSC Comments at 24-32.
\243\ Emera Comments at 7.
---------------------------------------------------------------------------
240. A number of entities also supported the extension of the
Commission's cash management rules to public utility holding
companies.\244\ According to MBIA Insurance, the Commission's cash
management rules are insufficient to adequately protect regulated
utilities, and it urges the Commission to broaden the application of
the rules beyond utilities and to apply them to holding companies.\245\
---------------------------------------------------------------------------
\244\ See, e.g., Georgia PSC Comments at 4, Santa Clara Comments
at 22, TANC Comments at 22. AGL Resources opposes comments to expand
cash management rule, noting that some holding companies such as AGL
have two cash management programs to address concerns regarding
cross-subsidization and encumbrances, i.e., separate utility and
non-utility money pools and that the Commission's current rules
allow it to review the utility money pool. AGL Resources Reply
Comments at 4-5.
\245\ MBIA Insurance Comments at 25.
---------------------------------------------------------------------------
Commission Determination
241. We interpret section 1275(c) of EPAct 2005 to be a savings
clause, which does not give the Commission the authority to issue
additional Commission rules regarding cross-subsidization, encumbrances
of utility assets, diversification into non-utility businesses, or the
extension of existing cash management rules. Rather, any such authority
resides in the FPA and NGA. In addition, as noted by E.ON and LG&E
Energy, current Commission and state regulations already provide
oversight regarding cross-subsidization and encumbrances of utility
assets. Accordingly, we will monitor industry activities, and we will
adopt new regulations on cross-subsidization or encumbrances of utility
assets, pursuant to our FPA and NGA authorities, only at such time as
our current regulations appear to be insufficient. However, these
matters will be further addressed at the technical conference that we
will be holding within the next year.
242. The Commission finds persuasive Dominion's argument that
Congress repealed the investment diversification limitations that have
been applicable to registered holding companies, and therefore we will
not propose additional rules regarding diversification into non-utility
businesses at this time. Moreover, we note that, if the Commission were
to propose such rules, we would have to do so under our FPA and NGA
authorities, as we lack the authority to do so under PUHCA 2005.
243. Finally, we will not propose to extend our cash management
rules to holding companies. As noted by Dominion and EEI, the cash
management rules adopted under the FPA and NGA already effectively
apply to holding companies because, where a jurisdictional utility is a
participant in a cash management arrangement with a holding company,
that arrangement must comply with Commission cash management rules and
the agreement must be filed. Therefore, the Commission will not propose
to extend existing cash management rules.
9. Additional Conforming or Technical Amendments
244. Section 1272(2) of EPAct 2005 directs the Commission to submit
to Congress detailed recommendations on technical and conforming
amendments to federal law necessary to carry out PUHCA 2005 within four
months after the date of enactment. In the NOPR, the Commission invited
comments as to what technical and conforming amendments the Commission
should include in this submission to Congress.
245. We received comments on recommendations we should make to
Congress, as well as comments on how we should interpret certain terms
in PUHCA 2005 or modifications we should make to our proposed
regulatory text.
a. Amendments of Definitions
Comments
246. Oklahoma Corporation Commission requests that the definitions
of ``affiliate'' and ``subsidiary'' in PUHCA 2005 be amended. Oklahoma
Corporation Commission contends that the difference in the two
percentages, i.e., five percent for affiliates and ten percent for
subsidiaries, would cause an affiliate company that is five percent
owned by a holding company to be subject to Commission rules while a
subsidiary that is also owned five percent by a holding company would
avoid the Commission rules. Thus, it urges the Commission to consider
definitions that would cause both the terms ``affiliate'' and
``subsidiary'' to have the same requirements and treatment.\246\
---------------------------------------------------------------------------
\246\ Oklahoma Corporation Commission Comments at 7.
---------------------------------------------------------------------------
247. A number of entities requested amendments to the definition of
``electric utility company.'' Morgan Stanley contends that the
definition of ``electric utility company'' is not in accord with other
definitions in PUHCA 2005 and that Congress intended that the two types
of ``public-utility companies,'' i.e. ``electric utility company'' and
``gas utility company'' should relate to retail activities only.
Accordingly, Morgan Stanley recommends that the words ``and not for
resale'' be placed at the end of the PUHCA 2005 definition of
``electric utility company'' to conform this definition with ``public
utility company'' and ``gas utility company.'' \247\
---------------------------------------------------------------------------
\247\ Morgan Stanley Comments at 10.
---------------------------------------------------------------------------
248. Morgan Stanley also urges the Commission to recommend to
Congress that at least the entire definition of ``exempt wholesale
generator'' from PUHCA 1935 be incorporated into PUHCA 2005, including
other terms that appear within that defined term, namely, ``eligible
facility'' from 15 U.S.C. 79z-5(a)(2), and ``affiliate'' from 15 U.S.C.
79b(a)(11)(B).\248\
---------------------------------------------------------------------------
\248\ Id.
---------------------------------------------------------------------------
249. Emera and National Grid recommend that the Commission adopt a
definition of ``foreign utility company'' clarifying that a FUCO is not
a ``public-utility company'', an ``electric utility company,'' or a
``gas utility company.'' Emera contends that such a definition would be
consistent with section 33 of PUHCA 1935 which
[[Page 75627]]
provides that FUCOs are not ``public-utility companies.'' \249\
---------------------------------------------------------------------------
\249\ Emera Comments 3-4. See also National Grid Comments at 4-11.
---------------------------------------------------------------------------
250. Emera and National Grid argue that the Commission should
implement the exemption for passive investors by seeking an amendment
the definition of ``holding company'' to exclude passive investors in a
public-utility company or holding company securities, such as
investment companies.\250\
---------------------------------------------------------------------------
\250\ Id. at 9.
---------------------------------------------------------------------------
251. Some commenters have requested that local distribution
companies be exempted from the requirements of PUHCA 2005 and suggest
that the Commission exclude them from the definition of ``natural gas
company.'' For example, American Gas Association requests that the
Commission clarify that local gas distribution companies that are not
regulated by the Commission are not embraced within the phrase
``natural-gas company,'' noting that EPAct 2005 defines the separate
term ``gas utility'' as a local distribution company. AGA asserts that,
while many local distribution companies are technically ``natural-gas
companies'' under the NGA because the natural gas in their systems
flows in interstate commerce, the Commission does not regulate local
distribution companies that are exempted under section 1(b) of the NGA,
Hinshaw pipelines exempted under section 1(c) of the NGA, entities
subject to service-area determinations under section 7(f) of the NGA,
and local distribution companies with blanket certificates.\251\
Dominion requests that the Commission clarify that this same pattern of
exemption from Commission regulation will be carried over with the
respect to the rules that the Commission proposes to issue here.\252\
Finally, Washington Gas & Light urges the Commission to clarify that
the proposed rules do not apply to local distribution companies and
section 7(f) companies that have previously been exempt from regulation
by the Commission. Washington Gas & Light emphasizes that no regulatory
gap would result because these local distribution companies and section
7(f) companies are subject to oversight of their rates and terms and
conditions of service by relevant local regulatory commissions.
Washington Gas & Light further contends that failure to grant this
exemption could cause federal rules, especially for rate setting
purposes, to become inconsistent with the regulations promulgated by
state commissions, creating compliance issues that might have to be
litigated in order to find resolution.\253\
---------------------------------------------------------------------------
\251\ American Gas Association Comments at 3-4. See also Keyspan
Comments at 6.
\252\ Dominion Comments at 26-27.
\253\ Washington Gas & Light Comments at 3-4.
---------------------------------------------------------------------------
Commission Determination
252. We will reject Oklahoma Corporation Commission's request to
modify the definitions of ``affiliate'' and ``subsidiary.'' Congress
chose to carry over these long-standing definitions from PUHCA 1935 to
PUHCA 2005 and thus clearly expressed its intent to retain these
statutory thresholds. However, we emphasize that section 1262(16)(B)
gives the Commission the authority to deem someone a ``subsidiary'' if
necessary for the rate protection of utility customers, even for
ownership interests of less than ten percent. Further, section 1264
gives the Commission the authority to examine the books and records of
any company in a holding company system, including affiliates and
subsidiaries. Thus, we believe that the Commission has sufficient
authority to protect customers without seeking a modification of these
definitions.
253. We will reject the requests of Morgan Stanley and others to
amend the definitions of ``electric utility company.'' The definitions
of ``electric utility company'' and ``gas utility company'' in PUHCA
1935 similarly differed in that the definition of ``electric utility
company'' was not limited to retail activities. By carrying over this
distinction into PUHCA 2005, it is clear that Congress did not intend
that these two definitions should be consistent. Moreover, if adopted,
Morgan Stanley's proposal would deprive the Commission of jurisdiction
over holding companies that own public utilities, and Morgan Stanley
has not provided any evidence that Congress meant to do so. With
respect to the definition of ``exempt wholesale generator,'' we will
grant Morgan Stanley's request to carry over the definition of
``eligible facility'' since that term is used within the definition of
EWG. The definition of eligible facility and other relevant provisions
are cross-referenced in the regulatory text of this final rule.
254. We deny Emera and National Grid's requests that we change the
definition of FUCO to state that a FUCO shall ``not be deemed a public
utility company, electric utility company or gas company under this
part.'' However, we clarify the definition of FUCO to state that these
companies shall not be subject to any of the requirements of this
subchapter other than section 366.2. Therefore, FUCOs are not required
to follow PUHCA 2005 accounting and reporting requirements, but must
continue to grant the Commission access to their accounts, books,
memoranda, and other records.
255. We will reject Emera's and National Grid's request that we
recommend an amendment to the definition of ``holding company'' to
reflect the exemption for passive investors. We have already adopted
this exemption in our regulations, and thus it is unnecessary to amend
the statutory definition.
256. With respect to the requests by various commenters on an
amendment concerning local distribution companies that are not
regulated by the Commission as natural gas companies under the NGA, we
find that such a statutory amendment is unnecessary, as we have
exempted local distribution companies from the books and records
requirements of PUHCA 2005 in section 366(c) of our regulations,
pursuant to our exemption authority under section 1266(b).
b. Other Proposed Amendments
Comments
257. EEI suggests that Commission recommend a technical amendment
to section 3(c)(8) of the Investment Company Act of 1940 (ICA).
According to EEI, section 3(c)(8) currently provides that,
notwithstanding the definition of ``investment company'' found in
section 3(a) of the ICA, a company subject to regulation under PUHCA
1935 shall not be an investment company. By the date repeal of PUHCA
1935 becomes effective, many holding companies will need to assert
their exempt status under section 3(b)(1) of the ICA, or seek an order
of exemption from the SEC under section 3(b)(2) of the ICA; if section
3(c)(8) is not amended, holding companies may be expected to seek the
certainty provided by an SEC order under section 3(b)(2), rather than
to rely on ``self-certification'' under section 3(b)(1). EEI asserts
that an amendment to section 3(c)(8) would, by continuing the exemption
from investment company status that holding companies have enjoyed to
date, make sure that holding company financing may proceed without
disruption after the date repeal of PUHCA 1935 becomes effective.\254\
---------------------------------------------------------------------------
\254\ EEI Comments at 37. See also Energy East Comments at 18-
19, National Grid Comments at 34-35.
---------------------------------------------------------------------------
258. NARUC notes that section 1270 of EPAct 2005 indicates that the
Commission has the same powers to enforce the provisions of PUHCA 2005
[[Page 75628]]
available under Sections 306 through 317 of the FPA. NARUC recommends
that the Commission request an amendment clarifying that the Commission
is able to enforce the provisions of PUHCA 2005 concerning natural gas
companies using the equivalent powers granted under the NGA.\255\
---------------------------------------------------------------------------
\255\ NARUC Comments at 14. See also NASUCA Comments at 3.
---------------------------------------------------------------------------
259. EEI submits that the Commission should recommend that section
1274(a) of EPAct 2005 be amended to specify that the savings provisions
of section 1271 are effective as of the date EPAct 2005 was
enacted.\256\ Similarly, PacifiCorp suggests that, in order to avoid
any gaps, the Commission propose a correction to the savings provision
in section 1271 of EPAct 2005 that allows activities and transactions
authorized under PUHCA 1935 or other law until February 8, 2006, when
PUHCA 2005 takes effect, to continue under the terms of the
authorization notwithstanding any provision of PUHCA 2005 or related
Commission regulations to the contrary.\257\
---------------------------------------------------------------------------
\256\ EEI Comments at 36. See also Cinergy Comments at 31,
Dominion Comments at 25.
\257\ PacifiCorp Comments at 6.
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260. EEI submits that the Commission should provide a procedure
similar to the SEC's general procedural rules, for submitting
information on a confidential basis.\258\ FirstEnergy states that
certain information is contained in Form U-5S is proprietary
information and that, although the Commission has rejected requests by
regulated public utilities to protect the confidentiality of certain
information contained in their FERC Forms 1, the SEC has permitted
information reported in Form U-5S to be so protected. FirstEnergy
argues that the Commission should therefore make clear that it will
similarly protect the confidentiality of such information.\259\
---------------------------------------------------------------------------
\258\ EEI Comments at 37-38, FirstEnergy Comments at [259].
\259\ FirstEnergy Comments at 8.
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261. FirstEnergy further contends that, because of the very limited
time available to the Commission to adopt rules needed to implement
PUHCA 2005, the Commission should make clear that any rules that may be
adopted in this proceeding are only interim rules that will be in
effect for no longer than one year. Such a procedure would enable the
Commission to meet its obligation to adopt rules required for
implementation of PUHCA 2005 within four months after its enactment,
but would provide assurance that such hastily-crafted rules would not
be in effect indefinitely. FirstEnergy contends that this approach
would give the Commission and interested parties additional time in
which to learn from their experience under the final rules that are
adopted in this proceeding, to give further consideration to the many
issues that have been raised by the Commission in the NOPR, and to work
toward development of final rules that are properly designed to protect
the public interest.\260\
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\260\ Id. at 21-22.
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Commission Determination
262. EEI recommends an amendment to section 3(c)(8) of the
Investment Company Act of 1940, which provides that a company subject
to regulation under PUHCA 1935 shall not be an ``investment company''
as defined in and regulated under the Investment Company Act of
1940.\261\ While such companies can file with the SEC and seek
exemption from the Investment Company Act of 1940 by claiming that they
fall within other exemptions, EEI notes that an amendment to section
3(c)(8) would allow such companies to avoid having to make such filings
with the SEC. The Investment Company Act of 1940, however, is not a
statute with which the Commission has experience, and the amendment is
not essential for the Commission to carry out its responsibilities
under PUHCA 2005 or any other statute the Commission administers.
Consequently, the Commission will bring this issue to the attention of
Congress, but will not make any recommendation.
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\261\ 15 U.S.C. 80a-3(c)(8) (2000).
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263. We agree with the comments of NARUC and will recommend an
amendment to section 1270 clarifying that the Commission is able to
enforce the provisions of PUHCA 2005 concerning natural gas companies
using the equivalent powers granted under the NGA.
264. We also agree with the suggestions of EEI and others regarding
the effective date of the savings provisions in section 1271, and we
will recommend that section 1274(a) of EPAct 2005 be amended to specify
that the savings provisions of section 1271 are effective as of the
date EPAct 2005 was enacted.
265. In response to the requests of EEI and others concerning the
protection of confidential information, we note that section 1264(d)
provides that no member, officer, or employee of the Commission shall
divulge any fact or information that may come to his or her knowledge
during the course of examination of books and records as provided in
this section, except as may be directed by the Commission or by a court
of competent jurisdiction. Furthermore, the Commission already has in
place procedures governing the treatment of confidential and other non-
public information in Part 388 of its regulations. Commenters have not
demonstrated that the Commission's current rules are inadequate, and we
conclude that it is unnecessary to adopt further rules at this time.
266. We will also reject FirstEnergy's request that the Commission
clarify that any rules adopted in this final rule are of an interim
nature. Nevertheless, the Commission will evaluate the rules it adopts
here on an ongoing basis based on its own experience and the
submissions received from parties in individual proceedings and the
technical conference.
Information Collection Statement
267. Office of Management and Budget (OMB) regulations require OMB
to approve certain information collection requirements imposed by
agency rule.\262\ However, the Commission is carrying out an express
statutory mandate spelled out in EPAct 2005. Moreover, to the extent
that the Commission is carrying over and applying requirements that the
SEC previously has applied, we note that the proposed regulations
assume responsibility for already approved information collections and
reduce their reporting burdens. Indeed, insofar as the regulations
adopted herein eliminate certain SEC regulations concerning accounting,
cost-allocation, recordkeeping, and related rules, they reduce the
information collection burden on regulated entities.
---------------------------------------------------------------------------
\262\ 5 CFR 1320.11 (2005).
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268. In particular, we are adopting a FERC Form No. 60 (annual
reports for service companies), a substantially streamlined version of
what had previously been SEC Form U13-60 implemented by the SEC. In
addition, we will require entities that are or become holding companies
within the meaning of PUHCA 2005 to submit a simple one-time filing,
FERC-65 (Notification of Holding Company Status), as compared to the
more substantial filings and forms previously required by SEC Form U-
5A. We establish a similar, simplified filing, as compared to the SEC's
existing filings and forms, for exemptions and waivers, namely FERC-65A
(Exemption Notification) and FERC-65B (Waiver Notification).
269. The Commission also eliminates the requirements contained in
its own regulations in 18 CFR part 365; the corresponding information
collection is
[[Page 75629]]
FERC-598 ``Determinations for Entities Seeking Wholesale Generator
Status.'' In its place, we are allowing a much simpler self-
certification.
Public Reporting Burden: (The table below reflects both SEC
reporting burden estimates and the Commission's projections.)
----------------------------------------------------------------------------------------------------------------
Number of Number of Number of hours Total annual
Data collection respondents responses per response hours
----------------------------------------------------------------------------------------------------------------
SEC U-5A (current)............................. 4 1 80 320
SEC U-13-60.................................... 65 1 13.5 878
FERC Form 60................................... 65 1 8 520
FERC-65........................................ 110 1 3 330
FERC-65A....................................... 35 1 1 35
FERC-65B....................................... 20 1 1 20
FERC-568 (current)............................. 112 1 6 672
FERC-598 (proposed)............................ 27 1 3 51
----------------------------------------------------------------------------------------------------------------
Action: Revision and adoption by Commission of currently approved
SEC collections of information.
OMB Control Nos.: Currently the relevant SEC and Commission
information collections have the following control numbers--SEC: 3235-
0153, 3235-0164, 3235-0182, 3235-0183, 3235-0306 and Commission: 1902-0166.
Frequency of Responses: The FERC Form No. 60 information collection
has annual submissions while FERC Form Nos. 65, 65A, and 65B involve
one-time submittals. FERC-598 certifications will be submitted on occasion.
Necessity of the Information: The proposed rule implements new
rules under part 366 of the Commission's regulations and deletes
requirements contained in part 365 of its regulations. These revisions
are to implement the repeal of PUHCA 1935 and the implementation of
certain provisions of the EPAct 2005.
270. For information on the requirements, submitting comments on
these collection of information including ways to reduce the burden
imposed by these requirements, please send your comments to the Federal
Energy Regulatory Commission, 888 First Street, NE., Washington, DC
20426 (Attention: Michael Miller, Office of the Executive Director,
(202-502-8415)) or send comments to the Office of Management and Budget
(Attention: Desk Officer for the Federal Energy Regulatory Commission,
fax: 202-395-7285, e-mail: oira_submission@omb.eop.gov.)
Environmental Analysis
271. 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.\263\ The
Commission has categorically excluded certain actions from this
requirement as not having a significant effect on the human
environment. Included in the exclusion are rules that carry out
legislation, involve information gathering, analyses and dissemination,
and involve accounting.\264\ Thus, we affirm the finding made in the
NOPR that this Final Rule carries out EPAct 2005 and involve
information gathering and analysis and accounting and therefore falls
under this exception; consequently, no environmental consideration is
necessary.
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\263\ Regulations Implementing the National Environmental Policy
Act, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs.
Preambles 1986-1990 ] 30,783 (1987).
\264\ 18 CFR 380.4(a)(3), (5), (16) (2005).
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Regulatory Flexibility Act Certification
272. The Regulatory Flexibility Act of 1980 (RFA) requires
rulemakings to contain either a description and analysis of the effect
that the rule will have on small entities or to contain a certification
that the rule will not have a significant economic impact on a
substantial number of small entities. \265\ The Commission concludes
that the Final Rule would not have such an impact on small entities.
Most companies to which the Final Rule applies do not fall within the
RFA's definition of small entity.\266\ Therefore, the Commission
certifies that this Final Rule will not have a significant economic
impact on a substantial number of small entities. Moreover, PUHCA 2005
exempts certain persons, and allows the Commission to exempt other
persons and classes of transactions. The various exemptions and waivers
adopted herein further minimize the effect of the Final Rule on small
entities, as many of the entities that should be able to take advantage
of these exemptions and waivers are small entities.
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\265\ 5 U.S.C. 603 (2000).
\266\ 5 U.S.C. 601(3) (2000), citing to section 3 of the Small
Business Act, 15 U.S.C. 632 (2000). Section 3 of the Small Business
Act 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 (2000). The Small Business Size
Standards component of the North American Industry Classification
System, for example, 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 year did not
exceed four million MWh. 13 CFR 121.201 (2005).
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Document Availability
273. 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 the Commission's Home Page (http://www.ferc.gov) 
and in the Commission'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.
274. 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 the docket
number excluding the last three digits of this document in the docket
number field.
275. User assistance is available for eLibrary and the Commission's
website 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).
[[Page 75630]]
Effective Date and Congressional Notification
This final rule will take effect February 8, 2006. The Commission
has determined with the concurrence of the Administrator of the Office
of Information and Regulatory Affairs of the Office of Management and
Budget, that this rule is not a major rule within the meaning of
section 251 of the Small Business Regulatory Enforcement Fairness Act
of 1996.\267\ The Commission will submit the Final Rule to both houses
of Congress and the General Accounting Office.\268\
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\267\ See 5 U.S.C. 804(2) (2000).
\268\ See 5 U.S.C. 801(a)(1)(A) (2000).
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List of Subjects in 18 CFR Parts 365 and 366
Electric power, Natural gas, Public utility holding companies and
service companies, Reporting and recordkeeping requirements, and Cost
allocations.
By the Commission.
Magalie R. Salas,
Secretary.
? In consideration of the foregoing, under the authority of EPAct 2005,
the Commission is amending Chapter I of Title 18 of the Code of Federal
Regulations, as set forth below:
SUBCHAPTER T--[REMOVED AND RESERVED]
PART 365--[REMOVED]
? 1. Subchapter T, consisting of part 365, is removed and reserved.
? 2. Subchapter U, consisting of part 366, is added to read as follows:
SUBCHAPTER U--REGULATIONS UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT
OF 2005
PART 366--PUBLIC UTILITY HOLDING COMPANY ACT OF 2005
Subpart A--PUHCA 2005 Definitions and Provisions
Sec.
366.1 Definitions.
366.2 Commission access to books and records.
366.3 Exemption from Commission access to books and records; waivers
of accounting, record-retention, and reporting requirements.
366.4 FERC-65, notification of holding company status, FERC-65A,
exemption notification, and FERC-65B, waiver notification.
366.5 Allocation of costs for non-power goods and services.
366.6 Previously authorized activities.
366.7 Procedures for obtaining exempt wholesale generator and
foreign utility company status.
Subpart B--PUHCA 2005 Accounting and Recordkeeping
366.21 Accounts and records of holding companies.
366.22 Accounts and records of service companies.
366.23 FERC Form No. 60, annual reports by service companies.
Authority: Sections 1261 et seq. Pub. L. 109-58, 199 Stat. 594.
Subpart A--PUHCA 2005 Definitions and Provisions
Sec. 366.1 Definitions.
For purposes of this part:
Affiliate. The term ``affiliate'' of a company means any company, 5
percent or more of the outstanding voting securities of which are
owned, controlled, or held with power to vote, directly or indirectly,
by such company.
Associate company. The term ``associate company'' of a company
means any company in the same holding company system with such company.
Commission. The term ``Commission'' means the Federal Energy
Regulatory Commission.
Company. The term ``company'' means a corporation, partnership,
association, joint stock company, business trust, or any organized
group of persons, whether incorporated or not, or a receiver, trustee,
or other liquidating agent of any of the foregoing.
Construction. The term ``construction'' means any construction,
extension, improvement, maintenance, or repair of the facilities or any
part thereof of a company, which is performed for a charge.
Electric utility company. The term ``electric utility company''
means any company that owns or operates facilities used for the
generation, transmission, or distribution of electric energy for sale.
For the purposes of this subchapter, ``electric utility company'' shall
not include entities that engage only in marketing of electric energy
or ``exempt wholesale generators.''
Exempt wholesale generator. The term ``exempt wholesale generator''
means any person engaged directly, or indirectly through one or more
affiliates as defined in this subchapter, and exclusively in the
business of owning or operating, or both owning and operating, all or
part of one or more eligible facilities and selling electric energy at
wholesale. For purposes of establishing or determining whether an
entity qualifies for exempt wholesale generator status, sections
32(a)(2) through (4), and sections 32(b) through (d) of the Public
Utility Holding Company Act of 1935 (15 U.S.C. 79z-5a(a)(2)-(4), 79z-
5b(b)-(d)) shall apply. An exempt wholesale generator shall not be
considered an electric utility company under this subchapter.
Foreign utility company. (1) The term ``foreign utility company''
means any company that owns or operates facilities that are not located
in any state and that are used for the generation, transmission, or
distribution of electric energy for sale or the distribution at retail
of natural or manufactured gas for heat, light, or power, if such company:
(i) Derives no part of its income, directly or indirectly, from the
generation, transmission, or distribution of electric energy for sale
or the distribution at retail of natural or manufactured gas for heat,
light, or power, within the United States; and
(ii) Neither the company nor any of its subsidiary companies is a
public utility company operating in the United States.
(2) A foreign utility company shall not be subject to any
requirements of this subchapter other than Sec. 366.2.
Gas utility company. The term ``gas utility company'' means any
company that owns or operates facilities used for distribution at
retail (other than the distribution only in enclosed portable
containers or distribution to tenants or employees of the company
operating such facilities for their own use and not for resale) of
natural or manufactured gas for heat, light, or power. For the purposes
of this subchapter, ``gas utility company'' shall not include entities
that engage only in marketing of natural and manufactured gas.
Goods. The term ``goods'' means any goods, equipment (including
machinery), materials, supplies, appliances, or similar property
(including coal, oil, or steam, but not including electric energy,
natural or manufactured gas, or utility assets) which is sold, leased,
or furnished, for a charge.
Holding company.
(1) In general. The term ``holding company'' means--
(i) Any company that directly or indirectly owns, controls, or
holds, with power to vote, 10 percent or more of the outstanding voting
securities of a public-utility company or of a holding company of any
public-utility company; and
(ii) Any person, determined by the Commission, after notice and
opportunity for hearing, to exercise directly or indirectly (either
alone or pursuant to an arrangement or understanding with one or more
persons) such a controlling influence over the management or policies
of any public-utility company or holding company as to make it necessary or
[[Page 75631]]
appropriate for the rate protection of utility customers with respect
to rates that such person be subject to the obligations, duties, and
liabilities imposed by this subtitle upon holding companies.
(2) Exclusions. The term ``holding company'' shall not include--
(i) A bank, savings association, or trust company, or their
operating subsidiaries that own, control, or hold, with the power to
vote, public utility or public utility holding company securities so
long as the securities are--
(A) Held as collateral for a loan;
(B) Held in the ordinary course of business as a fiduciary; or
(C) Acquired solely for purposes of liquidation and in connection
with a loan previously contracted for and owned beneficially for a
period of not more than two years; or
(ii) A broker or dealer that owns, controls, or holds with the
power to vote public utility or public utility holding company
securities so long as the securities are--
(A) Not beneficially owned by the broker or dealer and are subject
to any voting instructions which may be given by customers or their
assigns; or
(B) Acquired in the ordinary course of business as a broker,
dealer, or underwriter with the bona fide intention of effecting
distribution within 12 months of the specific securities so acquired.
Holding company system. The term ``holding company system'' means a
holding company, together with its subsidiary companies.
Jurisdictional rates. The term ``jurisdictional rates'' means rates
accepted, established or permitted by the Commission for the
transmission of electric energy in interstate commerce, the sale of
electric energy at wholesale in interstate commerce, the transportation
of natural gas in interstate commerce, and the sale in interstate
commerce of natural gas for resale for ultimate public consumption for
domestic, commercial, industrial, or any other use.
Natural gas company. The term ``natural gas company'' means a
person engaged in the transportation of natural gas in interstate
commerce or the sale of such gas in interstate commerce for resale.
Person. The term ``person'' means an individual or company.
Public utility. The term ``public utility'' means any person who
owns or operates facilities used for transmission of electric energy in
interstate commerce or sales of electric energy at wholesale in
interstate commerce.
Public-utility company. The term ``public-utility company'' means
an electric utility company or a gas utility company. For the purposes
of this subchapter, the owner-lessors and owner participants in lease
financing transactions involving utility assets shall not be treated as
``public-utility companies.''
Service. The term ``service'' means any managerial, financial,
legal, engineering, purchasing, marketing, auditing, statistical,
advertising, publicity, tax, research, or any other service (including
supervision or negotiation of construction or of sales), information or
data, which is sold or furnished for a charge.
Service company. The term ``service company'' means any associate
company within a holding company system organized specifically for the
purpose of providing non-power goods or services or the sale of goods
or construction work to any public utility in the same holding company
system.
Single-state holding company system. The term ``single-state
holding company system'' means a holding company system whose public
utility operations are confined substantially to a single state.
State commission. The term ``state commission'' means any
commission, board, agency, or officer, by whatever name designated, of
a state, municipality, or other political subdivision of a state that,
under the laws of such state, has jurisdiction to regulate public
utility companies.
Subsidiary company. The term ``subsidiary company'' of a holding
company means--
(1) Any company, 10 percent or more of the outstanding voting
securities of which are directly or indirectly owned, controlled, or
held with power to vote, by such holding company; and
(2) Any person, the management or policies of which the Commission,
after notice and opportunity for hearing, determines to be subject to a
controlling influence, directly or indirectly, by such holding company
(either alone or pursuant to an arrangement or understanding with one
or more other persons) so as to make it necessary for the rate
protection of utility customers with respect to rates that such person
be subject to the obligations, duties, and liabilities imposed by this
subtitle upon subsidiary companies of holding companies.
Voting security. The term ``voting security'' means any security
presently entitling the owner or holder thereof to vote in the
direction or management of the affairs of a company. For the purposes
of this subchapter, the term ``voting security'' shall not include
member interests in electric power cooperatives.
Sec. 366.2 Commission access to books and records.
(a) In general. Unless otherwise exempted by Commission rule or
order, each holding company and each associate company thereof shall
maintain, and shall make available to the Commission, such books,
accounts, memoranda, and other records as the Commission determines are
relevant to costs incurred by a public utility or natural gas company
that is an associate company of such holding company and necessary or
appropriate for the protection of utility customers with respect to
jurisdictional rates. However, for purposes of this subchapter, no
provision in the subchapter shall apply to or be deemed to include:
(1) the United States;
(2) A state or political subdivision of a state;
(3) Any foreign governmental authority not operating in the United
States;
(4) Any agency, authority, or instrumentality of any entity
referred to in paragraphs (a)(1), (2), or (3) of this section; or
(5) Any officer, agent, or employee of any entity referred to in
paragraphs (a)(1), (2), (3), or (4) of this section as such in the
course of his or her official duty.
(b) Affiliate companies. Unless otherwise exempted by Commission
rule or order, each affiliate of a holding company or of any subsidiary
company of a holding company shall maintain, and shall make available
to the Commission, such books, accounts, memoranda, and other records
with respect to any transaction with another affiliate, as the
Commission determines are relevant to costs incurred by a public
utility or natural gas company that is an associate company of such
holding company and necessary or appropriate for the protection of
utility customers with respect to jurisdictional rates.
(c) Holding company systems. The Commission may examine the books,
accounts, memoranda, and other records of any company in a holding
company system, or any affiliate thereof, as the Commission determines
are relevant to costs incurred by a public utility or natural gas
company within such holding company system and necessary or appropriate
for the protection of utility customers with respect to jurisdictional
rates.
(d) Confidentiality. No member, officer, or employee of the Commission
[[Page 75632]]
shall divulge any fact or information that may come to his or her
knowledge during the course of examination of books, accounts,
memoranda, or other records as provided in this section, except as may
be directed by the Commission or by a court of competent jurisdiction.
Sec. 366.3 Exemption from Commission access to books and records;
waivers of accounting, record-retention, and reporting requirements.
(a) Exempt classes of entities. Any person that is a holding
company, solely with respect to one or more of the following, is exempt
from the requirements of Sec. 366.2 and any accounting, record-
retention, or reporting requirements in this subchapter:
(1) Qualifying facilities under the Public Utility Regulatory
Policies Act of 1978 (16 U.S.C. 2601 et seq.);
(2) Exempt wholesale generators; or
(3) Foreign utility companies.
(b) Exemptions of additional persons and classes of transactions.
The Commission has determined that the following persons and classes of
transactions satisfy the requirements of paragraph (d) of this section
and may file to obtain an exemption from the requirements this
subchapter pursuant to the notification procedure contained in Sec.
366.4(b)(1):
(1) Passive investors, so long as the ownership remains passive,
including:
(i) Mutual funds,
(ii) Collective investment vehicles whose assets are managed by
banks, savings and loan associations and their operating subsidiaries,
or brokers/dealers; and
(iii) Persons that directly, or indirectly through their
subsidiaries or affiliates, buy and sell the securities of public
utilities in the ordinary course of business as a broker/dealer,
underwriter or fiduciary, and not exercising operational control over
the utility;
(2) Commission-jurisdictional utilities that have no captive
customers and that are not affiliated with any jurisdictional utility
that has captive customers, and holding companies that own or control
only such utilities;
(3) Transactions where the holding company affirmatively certifies
on behalf of itself and its subsidiaries, as applicable, that it will
not charge, bill or allocate to the public utility or natural gas
company in its holding company system any costs or expenses in
connection with goods and services transactions, and will not engage in
financing transactions with any such public utility or natural gas
company, except as authorized by a state commission or the Commission;
(4) Transactions between or among affiliates that are independent
of and do not include a public utility or natural gas company;
(5) Electric power cooperatives;
(6) Local distribution companies that are not regulated as
``natural gas companies'' pursuant to sections 1(b) or 1(c) of the
Natural Gas Act, 15 U.S.C. 717(b), (c)).
(c) Waivers. The following persons may file to obtain a waiver of
the accounting, record-retention, and filing requirements of Sec.
366.21, 366.22, and 366.23 pursuant to the notification procedures
contained in Sec. 366.4(c)(1):
(1) Single-state holding company systems as defined in Sec. 366.1;
(2) Holding companies that own generating facilities that total 100
MW or less in size and are used fundamentally for their own load or for
sales to affiliated end-users; or
(3) Investors in independent transmission-only companies.
(d) Commission authority to exempt additional persons and classes
of transactions. The Commission shall exempt a person or classes of
transaction from the requirements of Sec. 366.2 if, upon individual
application as described in paragraph (e) of this section or upon the
motion of the Commission--
(1) The Commission finds that the books, accounts, memoranda, and
other records of any person are not relevant to the jurisdictional
rates of a public utility or natural gas company; or
(2) The Commission finds that any class of transactions is not
relevant to the jurisdictional rates of a public utility or natural gas
company.
(e) Other requests for exemptions and waivers. Any person seeking
an exemption or waiver that is not covered by paragraphs (b) or (c) of
this section, shall file a petition for declaratory order pursuant to
Sec. 385.207(a) of this chapter justifying its request for exemption.
Any person seeking such an exemption or waiver shall bear the burden of
demonstrating that such an exemption is warranted.
Sec. 366.4 FERC-65, notification of holding company status, FERC-65A,
exemption notification, and FERC-65B, waiver notification.
(a) Notification of holding company status. Companies that meet the
definition of a holding company as provided by Sec. 366.1 as of
February 8, 2006, shall notify the Commission of their status as a
holding company no later than March 10, 2006. Holding companies formed
after February 8, 2006, shall notify the Commission of their status as
a holding company, no later than 30 days after their formation.
Notifications shall be made by submitting FERC-65 (notification of
holding company status), which contains the following: The identity of
the holding company and of the public utilities and natural gas
companies in the holding company system; the identity of service
companies or special-purpose subsidiaries providing non-power goods and
services; the identity of all affiliates and subsidiaries; and their
corporate relationship to each other. This filing will be for
informational purposes and will not be noticed in the Federal Register,
but will be available on the Commission's Web site.
(b) FERC-65A (exemption notification) and petitions for exemption.
(1) Persons or companies seeking exemption from the requirements of
PUHCA 2005 and the Commission's regulations thereunder under Sec.
366.3(a), or one of the class exemptions adopted under Sec. 366.3(b),
may do so by filing FERC-65A (exemption notification). These filings
will be noticed in the Federal Register; persons or companies that file
FERC-65A must include a form of notice suitable for publication in the
Federal Register in accordance with the specifications in Sec.
385.203(d). Persons or companies that file FERC-65A in good faith shall
be deemed to have a temporary exemption upon filing. If the Commission
has taken no action within 60 days after the date of filing FERC-65A,
the exemption shall be deemed to have been granted. The Commission may
toll the 60-day period to request additional information or for further
consideration of the request; in such case, the claim for exemption
will remain temporary until such time as the Commission has determined
whether to grant or deny the exemption. Authority to toll the 60-day
period is delegated to the Secretary or the Secretary's designee, and
authority to act on uncontested FERC-65A filings is delegated to the
Director of the Office of Markets, Tariffs and Rates or to the Director
of the Office of Markets, Tariffs and Rates' designee.
(2) Persons or companies that do not qualify for exemption pursuant
to Sec. 366.3(a) or Sec. 366.3(b) may seek an individual exemption
from this subchapter. They may not do so by means of filing FERC-65A
and instead must file a petition for declaratory order as required
under Sec. 366.3(e). Such petitions will be noticed in the Federal
Register; persons or companies that file a petition must include a form
of notice suitable for publication in the Federal Register in
accordance with the
[[Page 75633]]
specifications in Sec. 385.203(d). No temporary exemption will attach
upon filing and the requested exemption will be effective only if
approved by the Commission. Persons or companies may also seek
exemptions for classes of transactions by filing a petition for
declaratory order.
(c) FERC-65B (waiver notification) and petitions for waiver. (1)
Persons or companies seeking a waiver of the Commission's regulations
under PUHCA 2005 pursuant to Sec. 366.3(c) may do so by filing FERC-
65B (waiver notification). FERC-65B will be noticed in the Federal
Register; persons or companies that file FERC-65B must include a form
of notice suitable for publication in the Federal Register in
accordance with the specifications in Sec. 385.203(d). Companies that
file FERC-65B in good faith shall be deemed to have a temporary
exemption upon filing. If the Commission has taken no action within 60
days after the date of filing of FERC-65B, the waiver shall be deemed
to have been granted. The Commission may toll the 60-day period to
request additional information or for further consideration of the
request; in such case, the waiver will remain temporary until such time
as the Commission has determined whether to grant or deny the waiver.
Authority to toll the 60-day period is delegated to the Secretary or
the Secretary's designee, and authority to act on uncontested FERC-65B
filings is delegated to the Director of the Office of Markets, Tariffs
and Rates or the Director of the Office of Markets, Tariffs and Rates'
designee.
(2) Persons or companies that do not qualify for waiver pursuant to
Sec. 366.3(c) may seek an individual waiver from this subchapter. They
may not do so by means of filing FERC-65B and instead must file a
petition for declaratory order pursuant as required under Sec.
366.3(e). Such petitions will be noticed in the Federal Register;
persons or companies that file a petition must include a form of notice
suitable for publication in the Federal Register in accordance with the
specifications in Sec. 385.203(d) of this chapter. No temporary waiver
will attach upon filing and the requested exemption will be effective
only if approved by the Commission. Persons or companies may also seek
waivers for classes of transactions by filing a petition for
declaratory order.
(d) Revocation of exemption or waiver. (1) If a person or company
that has been granted an exemption or waiver under paragraphs (b) or
(c) of this section fails to conform with any material facts or
representations presented in its submittals to the Commission, such
company or company may no longer rely upon FERC-65A, FERC-65B, or a
Commission determination granting the exemption or waiver.
(2) The Commission may, on its own motion or on the motion of any
person, revoke the exemption or waiver granted under paragraphs (b) or
(c) of this section, if the person or company fails to conform to any
of the Commission's criteria under this part for obtaining the
exemption or waiver.
Sec. 366.5 Allocation of costs for non-power goods and services.
(a) Commission review. In the case of non-power goods or
administrative or management services provided by an associate company
organized specifically for the purpose of providing such goods or
services to any public utility in the same holding company system, at
the election of the system (the public utility holding company,
together with its subsidiary companies) or a state commission having
jurisdiction over the public utility, the Commission shall review and
authorize the allocation of the costs for such goods or services to the
extent relevant to that associate company. Such election to have the
Commission review and authorize cost allocations shall remain in effect
until further Commission order.
(b) Exemptions. Any holding company system whose public utility
operations are confined substantially to a single state is exempt from
the requirements of paragraph (a) of this section. A holding company
system's public utility operations will be deemed confined
substantially to a single state if the holding company system does not
derive more than 13 percent of its public-utility revenues from outside
a single state. A holding company system or state commission may,
pursuant to this subsection, seek a Commission determination that a
holding company's public utility operations are confined substantially
to a single state by filing a petition for declaratory order pursuant
to Rule 207(a) of the Commission's Rules of Practice and Procedure
(Sec. 385.207(a) of this chapter). Any holding company system or state
commission seeking such a determination shall bear the burden of
demonstrating that such determination is warranted.
(c) Other classes of transactions. Either upon petition for
declaratory order or upon its own motion, the Commission may exclude
from the scope of Commission review and authorization under paragraph
(a) of this section any class of transactions that the Commission finds
is not relevant to the jurisdictional rates of a public utility. Any
holding company system or state commission seeking to obtain such a
determination under this subsection shall file a petition for
declaratory order pursuant to Rule 207(a) of the Commission's Rules of
Practice and Procedure justifying its request for exemption (Sec.
385.207(a) of this chapter). Any holding company system or state
commission seeking such an exemption shall bear the burden of
demonstrating that such determination is warranted.
(d) Nothing in paragraphs (a) through (c) of this section shall
affect the authority of the Commission under the Federal Power Act (16
U.S.C. 791 et seq.), the Natural Gas Act (15 U.S.C. 717 et seq.), or
other applicable law, including the authority of the Commission with
respect to rates, charges, classifications, rules, regulations,
practices, contracts, facilities, and services.
Sec. 366.6 Previously authorized activities.
(a) General. Unless otherwise provided by Commission rule or order,
a person may continue to engage in activities or transactions
authorized under the Public Utility Holding Company Act of 1935 prior
to the effective date of the Public Utility Holding Company Act of
2005, February 8, 2006, until the later of the date such authorization
expires or December 31, 2007, so long as that person continues to
comply with the terms of such authorization. If any such activities or
transactions are challenged in a formal Commission proceeding, the
person claiming prior authorization shall be required to provide at
that time the full text of any such authorization (whether by rule,
order, or letter) and the application(s) or pleading(s) underlying such
authorization (whether by rule, order, or letter).
(b) Financing authorizations. Holding companies that intend to rely
on financing authorization orders or letters issued by the Securities
and Exchange Commission must file these orders or letters with the
Commission within 30 days after the effective date of the Public
Utility Holding Company Act of 2005, February 8, 2006; any reports or
other submissions that, pursuant to such financing authorizations,
previously were filed with the Securities and Exchange Commission must
instead be filed with the Commission, effective February 8, 2006. For
the purposes of this section, compliance with the terms of such
financing authorizations includes the requirement to notify the
Commission of any financing transactions that a holding company engages
in pursuant to such financing authorization.
[[Page 75634]]
Sec. 366.7 Procedures for obtaining exempt wholesale generator and
foreign utility company status.
(a) Self-certification notice procedure. An exempt wholesale
generator or a foreign utility company, or their representative, may
file with the Commission a notice of self-certification demonstrating
that it satisfies the definition of exempt wholesale generator or
foreign utility company. In the case of exempt wholesale generators,
the person filing a notice of self-certification under this section
must also file a copy of the notice with the state regulatory authority
of the state in which the facility is located. Notices of self-
certification will be published in the Federal Register. Persons that
file such notices must include a form of notice suitable for
publication in the Federal Register in accordance with the
specifications in Sec. 385.203(d) of this chapter. A person filing a
notice of self-certification in good faith will be deemed to have
temporary exempt wholesale generator or foreign utility company status.
If the Commission takes no action within 60 days from the date of
filing of the notice of self-certification, the self-certification
shall be deemed to have been granted. The Commission may toll the 60-
day period to request additional information, or for further
consideration of the request; in such cases, the person's exempt
wholesale generator or foreign utility company status will remain
temporary until such time as the Commission has determined whether to
grant or deny exempt wholesale generator or foreign utility company
status. Authority to toll the 60-day period is delegated to the
Secretary or the Secretary's designee, and authority to act on
uncontested notices of self-certification is delegated to the General
Counsel or the General Counsel's designee.
(b) Optional procedure for Commission determination of exempt
wholesale generator status or foreign utility company status. A person
may file for a Commission determination of exempt wholesale generator
status or foreign utility company status under Sec. 366.1 by filing a
petition for declaratory order pursuant to Rule 207(a) of the
Commission's Rules of Practice and Procedure (Sec. 385.207(a) of this
chapter), justifying its request for exemption. Persons that file
petitions must include a form of notice suitable for publication in the
Federal Register in accordance with the specifications in Sec.
385.203(d) of this chapter. Authority to act on uncontested notices of
self-certification is delegated to the General Counsel or the General
Counsel's designee.
(c) Revocation of status. (1) If an exempt wholesale generating
facility or a foreign utility company fails to conform with any
material facts or representations presented by the applicant in its
submittals to the Commission, the notice of self-certification of the
status of the facility or Commission order certifying the status of the
facility may no longer be relied upon.
(2) The Commission may, on its own motion or on the application of
any person, revoke the status of a facility or company, if the facility
or company fails to conform to any of the Commission's criteria under
this part.
Subpart B--PUHCA 2005 Accounting and Recordkeeping
Sec. 366.21 Accounts and records for holding companies.
(a) General. Unless otherwise exempted or granted a waiver by
Commission rule or order, every holding company shall maintain and make
available to the Commission books, accounts, memoranda, and other
records of all of its transactions in sufficient detail to permit
examination, audit and verification, as necessary and appropriate for
the protection of utility customers with respect to jurisdictional
rates, of the financial statements, schedules and reports required to
be filed with the Commission or issued to stockholders.
(b) Unless otherwise exempted or granted a waiver by Commission
rule or order, beginning January 1, 2007, all holding companies must
comply with the Commission's record-retention requirements for public
utilities and licensees or for natural gas companies, as appropriate
(parts 125 and 225 of this chapter). Until December 31, 2006, holding
companies registered under the Public Utility Holding Company Act of
1935 (16 U.S.C. 79a et seq.) may follow either the Commission's record-
retention rules for public utilities and licensees or for natural gas
companies, as appropriate (parts 125 and 225 of this chapter), or the
Security and Exchange Commission's record-retention rules in 17 CFR
part 257.
(c) Nothing in this section shall relieve any company subject
thereto from compliance with the requirements as to recordkeeping and
record-retention that may be prescribed by any other regulatory agency.
Sec. 366.22 Accounts and records of service companies.
(a) Record-retention requirements--(1) General. Unless otherwise
exempted or granted a waiver by Commission rule or order, beginning
January 1, 2007, every service company shall maintain and make
available to the Commission such books, accounts, memoranda, and other
records in such manner and preserve them for such periods, as the
Commission prescribes in parts 125 and 225 of this chapter in
sufficient detail to permit examination, audit, and verification, as
necessary and appropriate for the protection of utility customers with
respect to jurisdictional rates.
(2) Transition period. Until December 31, 2006, service companies
in holding company systems registered under the Public Utility Holding
Company Act of 1935 (16 U.S.C. 79a et seq. (2000)) may follow either
the Commission's record-retention requirements in parts 125 and 225 of
this chapter or the Securities and Exchange Commission's record-
retention rules in 17 CFR part 257.
(3) Nothing in this section shall relieve any service company
subject thereto from compliance with requirements as to record-
retention that may be prescribed by any other regulatory agency.
(b) Accounting requirements--(1) General. Unless otherwise exempted
or granted a waiver by Commission rule or order, beginning January 1,
2007, every service company that is not a special-purpose company
(e.g., a fuel supply company or a construction company) shall maintain
and make available to the Commission such books, accounts, memoranda,
and other records as the Commission prescribes in parts 101 and 201 of
this chapter, in sufficient detail to permit examination, audit, and
verification, as necessary and appropriate for the protection of
utility customers with respect to jurisdictional rates. Every such
service company shall maintain and make available such books, accounts,
memoranda, and other records in such manner as are prescribed in parts
101 and 201 of this chapter, and shall keep no other records with
respect to the same subject matter except:
(i) Records other than accounts;
(ii) Records required by federal or state law;
(iii) Subaccounts or supporting accounts which are not inconsistent
with the accounts required either by the Uniform System of Accounts in
parts 101 and 201 of this chapter; and
(iv) Such other accounts as may be authorized by the Commission.
(2) Transition period. Until December 31, 2006, service companies
in holding company systems registered under the Public Utility Holding
Company Act of 1935 (16 U.S.C. 79a et seq.), as described in paragraph
(b)(1) of this
[[Page 75635]]
section, may follow either the Commission's Uniform System of Accounts
in parts 101 and 201 of this chapter or the Securities and Exchange
Commission's Uniform System of Accounts in 17 CFR part 256.
(3) Nothing in this section shall relieve any service company
subject thereto from compliance with requirements as to accounting that
may be prescribed by any other regulatory agency.
Sec. 366.23 FERC Form No. 60, annual reports by service companies.
(a) General. Unless otherwise exempted or granted a waiver by
Commission rule or order, every service company in a holding company
system that is not a special-purpose company (e.g., a fuel supply
company or a construction company) that provides non-power goods or
services to a Commission-jurisdictional public utility or natural gas
company shall file with the Commission by May 1, 2006 and by May 1 each
year thereafter, a report, FERC Form No. 60, for the prior calendar
year. Every such report shall be submitted on the FERC Form No. 60 then
in effect and shall be prepared in accordance with the instructions
incorporated in such form. For good cause shown, the Commission may
extend the time within which any such report is to be filed or waive
the requirements applicable to any such report. The authority to act on
motions for extensions of time to file any such reports or to waive the
requirements applicable to any such reports, including granting or
denying such motions, in whole or in part, is delegated to the Chief
Accountant or the Chief Accountant's designee.
(b) Transition period. Service companies in holding company systems
exempted from the requirements of the Public Utility Holding Company
Act of 1935 (16 U.S.C. 79a et seq.) need not file an annual report,
FERC Form No. 60, for calendar years 2005 and 2006.
Note: The following appendixes will not appear in the Code of
Federal Regulations.
Appendix 1 List of Commenters
------------------------------------------------------------------------
Acronym Name
------------------------------------------------------------------------
AGL Resources................................... AGL Resources Inc.
Alcoa........................................... Alcoa Inc.
Allegheny Energy Inc.
Alliant......................................... Alliant Energy
Corporation.
Ameren.......................................... Ameren Services
Company.
AEP............................................. American Electric
Power Service
Corporation.
AGA............................................. American Gas
Association.
American National Power......................... American National
Power, Inc.
APGA............................................ American Public Gas
Association.
APPA/NRECA...................................... American Public Power
Association/National
Rural Electric
Cooperative
Association.
American Transmission
Company LLC.
Cooperatives.................................... Arizona Electric Power
Cooperative, Inc./
Southwest
Transmission
Cooperative, Inc./
Sierra Southwest
Cooperative Services,
Inc.
Arkansas PSC.................................... Arkansas Public
Service Commission.
Barclays........................................ Barclays Global
Investors, N.A.
Barrick......................................... Barrick Goldstrike
Mines Inc.
Black Hills..................................... Black Hills
Corporation.
CEOB............................................ California Electricity
Oversight Board.
Calpine......................................... Calpine Corporation.
Capital Research and
Management Company.
Cinergy......................................... Cinergy Corporation.
City of Redding,
California.
Santa Clara..................................... City Santa Clara,
California.
Chairman Barton................................. Congressman Joe
Barton.
ConEd........................................... Consolidated Edison
Company of New York,
Inc.
Coral Power and Shell WindEnergy................ Coral Power, LLC and
Shell WindEnergy Inc.
Detroit Edison.................................. Detroit Edison
Company.
Dominion........................................ Dominion Resources,
Inc.
Duke Energy..................................... Duke Energy
Corporation.
EEI............................................. Edison Electric
Institute.
EPSA............................................ Electric Power Supply
Association.
ELCON........................................... Electricity Consumers
Resource Council/
American Iron and
Steel Institute/
American Chemistry
Council/Portland
Cement Association.
Emera........................................... Emera Incorporated.
Energy East..................................... Energy East
Corporation.
Entergy......................................... Entergy Services, Inc.
E.ON/LG&E Energy................................ E.ON AG and LG&E
Energy LLC.
Exelon.......................................... Exelon Corporation.
FirstEnergy..................................... FirstEnergy Service
Company.
FPL Group....................................... FPL Group, Inc.
Georgia PSC..................................... Georgia Public Service
Commission.
Goldman Sachs................................... The Goldman Sachs
Group, Inc.
IURC............................................ Indiana Utility
Regulatory
Commission.
International
Transmission Company.
Investment Advisor
Association.
Investment Company
Institute.
Kentucky PSC.................................... Kentucky Public
Service Commission.
Keyspan......................................... Keyspan Corporation.
MBIA............................................ MBIA Insurance
Corporation.
MGTC............................................ MGTC Inc.
MidAmerican..................................... MidAmerican Energy
Holdings Company.
Missouri PSC.................................... Missouri Public
Service Commission.
[[Page 75636]]
Mittal Steel.................................... Mittal Steel USA ISG,
Inc.
Morgan Stanley.................................. Morgan Stanley Capital
Group Inc.
NARUC........................................... National Association
of Regulatory Utility
Commissioners.
NASUCA.......................................... National Association
of State Utility
Consumer Advocates.
National Fuel................................... National Fuel Gas
Company.
National Grid................................... National Grid USA.
NiSource........................................ NiSource Inc.
Northeast Utilities............................. Northeast Utilities
Service Company.
PG&E Corporation.
Ohio PUC........................................ Public Utilities
Commission of Ohio.
Oklahoma Corporation............................ Oklahoma Corporation
Commission.
Pacificorp.
Pepco Holding, Inc./
Potomac Electric
Power Company/
Atlantic City.
Electric Company/
Delmarva Power &
Light Company/
Conectiv.
Energy Supply, Inc./
PEPCO Energy Services
Inc./PHI Service
Company and other
system companies.
Portland General
Electric Company.
PPL............................................. PPL Companies.
PPM Energy, Inc.
Progress Energy................................. Progress Energy, Inc.
Public Citizen.................................. Public Citizen Inc.
Wisconsin PSC................................... Public Service
Commission of
Wisconsin.
Questar Corporation.
Scottish Power.
Southern Company
Services, Inc.
TANC............................................ Transmission Agency of
Northern California.
Tri-State Generation/
Transmission
Association, Inc.
Utility Workers................................. Utility Workers Union
of America.
WGL Holdings, Inc. and
Washington Gas &
Light Company.
Xcel............................................ Xcel Energy Services
Inc.
------------------------------------------------------------------------
Appendix 2 FERC Form No. 60
United States
Federal Energy Regulatory Commission
Washington, DC 20426
FORM 60
ANNUAL REPORT
FOR THE PERIOD
Beginning -------- and Ending --------
To the
Federal Energy Regulatory Commission of
(Exact Name of Reporting Company)
A -------- Service Company
(''Mutual'' or ``Subsidiary'')
Date of Incorporation -------- If not Incorporated, Date of
Organization --------.
State or Sovereign Power under which Incorporated or Organized ----
----
Location of Principal Executive Offices of Reporting Company ------
--
Name, title, and address of officer to whom correspondence
concerning this report should be addressed:
(Name) (Title) (Address)
Name of Principal Holding Company under which Reporting Company is
organized:
Instructions For Use of Form 60
1. Timing of Filing
On or before the first day of May in each calendar year, each
mutual service company and each subsidiary service company shall
file with Commission an annual report on Form 60 and in accordance
with the Instructions for that form.
2. Number of Copies
Each annual report shall be filed in duplicate. The company
should prepare and retain at least one extra copy for itself in case
correspondence with reference to the report becomes necessary.
3. Period Covered by Report
The first report filed by the company shall cover the period
from the date the Uniform System of Accounts was required to be made
effective as to that company to the end of that calendar year.
Subsequent reports should cover a calendar year.
4. Report Format
Reports shall be submitted on the forms prepared by the
Commission. If the space provided on any sheet of such form is
inadequate, additional sheets may be inserted of the same size as a
sheet of the form or folded to each size.
5. Money Amounts Displayed
All money amounts required to be shown in financial statements
may be expressed in whole dollars, in thousands of dollars or in
hundred thousands of dollars, as appropriate and subject to
provisions of Regulation S-X (210.3-01).
6. Deficits Displayed
Deficits and other like entries shall be indicated by the use of
either brackets or a parenthesis with corresponding reference in
footnotes (Regulation S-X, 210.3-01(c)).
7. Major Amendments or Corrections
Any company desiring to amend or correct a major omission or
error in a report after it has been filed with the Commission shall
submit an amended report including only those pages, schedules and
entries that are to be amended or corrected. A cover letter shall be
submitted requesting the Commission to incorporate the amended
report changes and shall be signed by a duly authorized officer of
the company.
8. Definitions
Definitions contained in Instruction 01-8 to the Uniform System
of Accounts for Mutual Service Companies and Subsidiary Service
Companies, Public Utility Holding Act of 2005, shall be applicable
to words or terms used specifically within this Form 60.
9. Organization Chart
The Service Company shall submit with each annual report a copy
of its current organization chart.
10. Methods of Allocation
The Service Company shall submit with each annual report a
listing of the currently effective methods of allocation being used
by the service company and on file and approved previously by the
Securities and Exchange Commission pursuant to the Public Utility
Holding Company Act of 19355.
11. Annual Statement of Compensation for Use of Capital Billed
The service company shall submit with each annual report a copy
of the annual statement supplied to each associate company in
support of the amount of compensation for use of capital billed
during the calendar year.
12. Collection of Information
The information requested by this form is being collected under
authority of the Public
[[Page 75637]]
Utility Holding Act of 2005. The Commission estimates that it will
take each respondent thirteen and one-half (13.5) hours to respond
to this collection of information. A response to this form is
mandatory. The information on this form will not be kept
confidential. An agency may not conduct or sponsor, and a person is
not required to respond to, a collection of information unless a
currently valid OMB control number is displayed.
13. Where To File
File Form 60 at the following address:
Federal Energy Regulatory Commission,
888 First Street, NE.,
Washington, DC 20426.
Listing of Schedules and Analysis of Accounts
------------------------------------------------------------------------
Description of Schedules and
Accounts Schedule or Account No. Page No.
------------------------------------------------------------------------
Comparative Balance Sheet........... Schedule I............. 5
Service Company Property............ Schedule II............ 7
Accumulated Provision for Schedule III........... 8
Depreciation and Amortization of
Service Company Property.
Investments......................... Schedule IV............ 9
Accounts Receivable from Associate Schedule V............. 9
Companies.
Fuel Stock Expenses Undistributed... Schedule VI............ 10
Stores Expense Undistributed........ Schedule VII........... 10
Miscellaneous Current and Accrued Schedule VIII.......... 11
Assets.
Miscellaneous Deferred Debits....... Schedule IX............ 11
Research, Development, or Schedule X............. 12
Demonstration Expenditures.
Proprietary Capital................. Schedule XI............ 12
Long-Term Debt...................... Schedule XII........... 13
Current and Accrued Liabilities..... Schedule XIII.......... 14
Notes to Financial Statements....... Schedule XIV........... 14
Comparative Income Statement........ Schedule XV............ 15
Analysis of Billing--Associate Account 457............ 16
Companies.
Analysis of Billing--Nonassociate Account 458............ 17
Companies.
Analysis of Charges for Service-- Schedule XVI........... 18
Associate and Nonassociate
Companies.
Schedule of Expense Distribution by Schedule XVII.......... 19
Department or Service Function.
Departmental Analysis of Salaries... Account 920............ 20
Miscellaneous General Expenses...... Account 930.2.......... 20
Notes to Statement of Income........ Schedule XVIII......... 21
Organization Chart.................. ....................... 22
Methods of Allocation............... ....................... 22
Annual Statement of Compensation for ....................... 22
Use of Capital Billed.
------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
Schedule I--Comparative Balance Sheet
[Give balance of the Company as of December 31 of the current and prior year.]
----------------------------------------------------------------------------------------------------------------
As of December 31,
Account Assets and other debits -------------------------------
Current Prior
----------------------------------------------------------------------------------------------------------------
Service Company Property
101.............................. Service company property (Schedule II)
107.............................. Construciton work in progress (Schedule II)
Total Property
108.............................. Less: Accumulated provision for depreciation
and amortization of service company property
(Schedule III)
Net Service Company Property
Investments
123.............................. Investments in associate companies (Schedule
IV)
124.............................. Other investments (Schedule IV)
Total Investments
Current and Accrued Assets
131.............................. Cash
134.............................. Special deposits
135.............................. Working funds
136.............................. Temporary cash investments (Schedule IV)
141.............................. Notes receivable
143.............................. Accounts receivable
144.............................. Accumulated provision for uncollectible
accounts
146.............................. Accounts receivable from associate companies
(Schedule V)
152.............................. Fuel stock expenses undistributed (Schedule
VI)
154.............................. Materials and supplies
163.............................. Stores expense undistributed (Schedule VII)
Prepayments
165.............................. Miscellaneous current and accrued assets
(Schedule VIII)
174.............................. Total Current and Accrued Assets
[[Page 75638]]
Deferred Debits
Unamortized debt expense
181.............................. Clearing accounts
184.............................. Miscellaneous deferred debits (Schedule IX)
186.............................. Research, development, or demonstration
expenditures (Sch. X)
188.............................. Accumulated deferred income taxes
190.............................. Total Deferred Debits
Total Assets and Other Debits
----------------------------------------------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
Schedule I--Comparative Balance Sheet
----------------------------------------------------------------------------------------------------------------
As of December 31,
Account Liabilities and proprietary capital -------------------------------
Current Prior
----------------------------------------------------------------------------------------------------------------
Proprietary Capital
201.............................. Common stock issued (Schedule XI)
211.............................. Miscellaneous paid-in-capital (Schedule XI)
215.............................. Appropriated retained earnings (Schedule XI)
216.............................. Unappropriated retained earnings (Schedule
XI)
Total Proprietary Capital
Long-Term Debt
223.............................. Advances from associate companies (Schedule
XII)
224.............................. Other long-term debt (Schedule XII)
225.............................. Unamortized premium on long-term debt
226.............................. Unamortized discount on long-term debt-debit
Total Long-Term Debt
Current and Accrued Liabilities
228.............................. Accumulated provision for pensions and
benefits
231.............................. Notes payable
232.............................. Accounts payable
233.............................. Notes payable to associate companies
(Schedule XIII)
234.............................. Accounts payable to associate companies
(Schedule XIII)
236.............................. Taxes accrued
237.............................. Interest accrued
241.............................. Tax collections payable
242.............................. Miscellaneous current and accrued liabilities
(Schedule XIII)
243.............................. Obligations under capital leases--Current
Total Current and Accrued Liabilities
Deferred Credits
253.............................. Other deferred credits
255.............................. Accumulated deferred investment tax credits
Total Deferred Credits
282.............................. Accumulated Deferred Income Taxes
Total Liabilities and Proprietary Capital
----------------------------------------------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Schedule II--Service Company Property
--------------------------------------------------------------------------------------------------------------------------------------------------------
Balance at
Account Description beginning of Additions Retirements or Other changes Balance at
year sales \1\ close of year
--------------------------------------------------------------------------------------------------------------------------------------------------------
301.................................. Organization
303.................................. Miscellaneous Intangible Plant
304.................................. Land and Land Rights
305.................................. Structures and Improvements
306.................................. Leasehold Improvements
307.................................. Equipment \2\
308.................................. Office Furniture and Equipment
[[Page 75639]]
309.................................. Automobiles, Other Vehicles and
Related Garage Equipment
310.................................. Aircraft and Airport Equipment
311.................................. Other Property: \3\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sub-Totals
107 Construction Work in Progress \4\
Total
\1\ Provide an explanation of those changes considered material.
\2\ Subaccounts are required for each class of equipment owned.
The service company shall provide a listing by subaccount of
equipment additions during the year and balance at the close of the year.
\3\ Describe other service company property.
\4\ Describe construction work in progress.
------------------------------------------------------------------------
Balance at close
Subaccount description Additions of year
------------------------------------------------------------------------
------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Schedule III--Accumulated Provision for Depreciation and Amortization of Service Company Property
--------------------------------------------------------------------------------------------------------------------------------------------------------
Balance at Additions Other changes
Account Description beginning of charged to Retirements additions Balance at
year account 403 (deductions) * close of year
--------------------------------------------------------------------------------------------------------------------------------------------------------
301.................................. Organization
303.................................. Miscellaneous Intangible Plant
304.................................. Land and Land Rights
305.................................. Structures and Improvements
306.................................. Leasehold Improvements
307.................................. Equipment
308.................................. Office Furniture and Equipment
309.................................. Automobiles, Other Vehicles and
Related Garage Equipment
310.................................. Aircraft and Airport Equipment
311.................................. Other Service Company Property:
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Provide an explanation of those changes considered material.
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Schedule IV--Investments
[Instructions: Complete the following schedule concerning investments.
Under Account 124 ``Other Investments'', state each investment
separately, with description, including the name of issuing company,
number of shares or principal amount, etc. Under Account 136,
``Temporary Cash Investments'', list each investment separately.]
------------------------------------------------------------------------
Balance at
Description beginning of Balance at
year close of year
------------------------------------------------------------------------
Account 123--Investment in Associate
Companies
Account 124--Other Investments
Account 136--Temporary Cash Investments
Total
------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended
[[Page 75640]]
-----------------------------------------------------------------------
Schedule V--Accounts Receivable From Associate Companies
[Instructions: Complete the following schedule listing accounts
receivable from each associate company. Where the service company has
provided accommodation or convenience payments for associate companies,
a separate listing of total payments for each associate company by
subaccount should be provided.]
------------------------------------------------------------------------
Balance at
Description beginning of Balance at
year close of year
------------------------------------------------------------------------
Account 146--Accounts Receivable from
Associate Companies
Total
Analysis of Convenience or Accommodation
Payments: Total Payments for each
associate
Total Payments
------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Schedule VI--Fuel Stock Expenses Undistributed
[Instructions: Report the amount of labor and expenses incurred with respect to fuel stock expenses during the
year and indicate amount attributable to each associate company. Under the section headed ``Summary'' listed
below give and overall report of the fuel functions performed by the service company.]
----------------------------------------------------------------------------------------------------------------
Description Labor Expenses Total
----------------------------------------------------------------------------------------------------------------
Account 152--Fuel Stock Expenses Undistributed
Total
Summary:
----------------------------------------------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Schedule VII--Stores Expense Undistributed
[Instructions: Report the amount of labor and expenses incurred with respect to stores expense during the year
and indicate amount attributable to each associate company.]
----------------------------------------------------------------------------------------------------------------
Description Labor Expenses Total
----------------------------------------------------------------------------------------------------------------
Account 163--Stores Expense Undistributed
Total
----------------------------------------------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Schedule VIII--Miscellaneour Current and Accrued Assets
[Instructions: Provide detail of items in this account. Items less than
$10,000 may be grouped, showing the number of items in each group.]
------------------------------------------------------------------------
Balance at
Description beginning of Balance at
year close of year
------------------------------------------------------------------------
Account 174--Miscellaneous Current and
Accrued Assets
Total
------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
For the Year End------------------------------------------------------
Schedule IX--Miscellaneous Deferred Debits
[Instructions: Provide detail of items in this account. Items less than
$10,000 may be grouped, showing the number of items in each group.]
------------------------------------------------------------------------
Balance at
Description beginning of Balance at
year close of year
------------------------------------------------------------------------
Account 186--Miscellaneous Deferred
Debits
Total
------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended
[[Page 75641]]
-----------------------------------------------------------------------
Schedule X--Research, Development or Demonstration Expenditures
[Instructions: Provide a description of each material research,
development, or demonstration project which incurred costs by the
service corporation during the year.]
------------------------------------------------------------------------
Description Amount
------------------------------------------------------------------------
Account 188--Research, Development, or Demonstration
Expenditures
Total
------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Schedule XI--Proprietary Capital
----------------------------------------------------------------------------------------------------------------
Number of Par or stated Outstanding Close of
Account No. Class of stock shares value per number of period total
authorized share shares amount
----------------------------------------------------------------------------------------------------------------
201...................... Common Stock Issued
----------------------------------------------------------------------------------------------------------------
Instructions: Classify amounts in each account with brief
explanation, disclosing the general nature of transactions which
give rise to the reported amounts.
Description------------Amount
Account 211--Miscellaneous Paid-In Capital
Account 215--Appropriated Retained Earnings
Total
Instructions:
Give particulars concerning net income or (loss) during the year,
distinguishing between compensation for the use of capital owed or
net loss remaining from servicing nonassociates per the General
Instructions of the Uniform System of Accounts. For dividends paid
during the year in cash or otherwise, provide rate percentage,
amount of dividend, date declared and date paid.
----------------------------------------------------------------------------------------------------------------
Balance at
Description beginning of Net income or Dividend paid Balance at
year (loss) close of year
----------------------------------------------------------------------------------------------------------------
Account 216--Unappropriated Retained Earnings...
----------------------------------------------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Schedule XII--Long-Term Debt
[Instructions: Advances from associate companies should be reported separately for advances on notes, and advances on open accounts. Names of associate
companies from which advances were received shall be shown under the class and series of obligation column. For Account 224--Other long-term debt,
provide the name of creditor company or organization, terms of the obligation, date of maturity, interest rate, and the amount authorized and
outstanding.]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Term of
obligation Date of Amount Balance at Additions Balance at
Name of creditor class & series maturity Interest rate authorized beginning of deductions * close of year
of obligation year
--------------------------------------------------------------------------------------------------------------------------------------------------------
Account 223
Advances From Associate Companies
Account 224--Other Long-Term Debt:
Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Given an explanation of deductions:
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Schedule XIII--Current and Accrued Liabilities
[Instructions: Provide balance of notes and accounts payable to each
associate company. Give description and amount of miscellaneous current
and accrued liabilities. Items less than $10,000 may be grouped, showing
the number of items in each group.]
------------------------------------------------------------------------
Balance at
Description beginning of Balance at
year close of year
------------------------------------------------------------------------
Account 233--Notes Payable to Associate
Companies
Total
Account 234--Accounts Payable to
Associate Companies
Total
[[Page 75642]]
Account 242--Miscellaneous and Accrued
Liabilities
Total
------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Schedule XIV--Notes to Financial Statements
Instructions: The space below is provided for important notes
regarding the financial statements or any account thereof. Furnish
particulars as to any significant contingent assets or liabilities
existing at the end of the year. Notes relating to financial statements
shown elsewhere in this report may be indicated here by reference.
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Schedule XV--Comparative Income Statement
----------------------------------------------------------------------------------------------------------------
Account Description Current year Prior year
----------------------------------------------------------------------------------------------------------------
Income
457............................... Services rendered to associate
companies taxes
458............................... Services rendered to non
associate companies
421............................... Miscellaneous income or loss
Total Income
Expense
920............................... Salaries and wages
921............................... Office supplies and expenses
922............................... Administrative expense
transferred--credit
923............................... Outside services employed
924............................... Property insurance
925............................... Injuries and damages
926............................... Employee pensions and benefits
928............................... Regulatory commission expense
930.1............................. General advertising expenses
930.2............................. Miscellaneous general expenses
931............................... Rents
403............................... Depreciation and amortization
expense
408............................... Taxes other than income taxes
409............................... Income taxes
410............................... Provision for deferred income
taxes
411............................... Provision for deferred income
taxes--credit
411.5............................. Investment Tax Credit
426.1............................. Donations
426.5............................. Other deductions
427............................... Interest on long-term debt
430............................... Interest on debt to associate
companies
431............................... Other interest expense
Total Expense
Net Income of (Loss)
----------------------------------------------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Analysis of Billing Associate Companies--Account 457
----------------------------------------------------------------------------------------------------------------
Compensation
Name of associate company Direct costs Indirect costs for use of Total amount
charged charged capital billed
----------------------------------------------------------------------------------------------------------------
457-1 457-2 457-3
----------------------------------------------------------------------------------------------------------------
Total
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended
[[Page 75643]]
-----------------------------------------------------------------------
Analysis of Billing Associate Companies--Account 458
[Instruction: Provide a brief description of the services rendered to each nonassociate company:]
----------------------------------------------------------------------------------------------------------------
Compensation
Name of associate company Direct costs Indirect costs for use of Total amount
charged charged capital billed
----------------------------------------------------------------------------------------------------------------
458-1 458-2 458-3
----------------------------------------------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Schedule XVI--Analysis of Charges for Service--Associate and Nonassociate Companies
[Instruction: Total cost of service will equal for associate and nonassociate companies the total amount billed under their separate analysis of billing
schedules.]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Associate company Nonassociate company Total charges for services
--------------------------------------------------------------------------------------------------
Acct. Description of items Direct Indirect Total Direct Indirect Total Direct Indirect Total
cost cost cost cost cost cost cost cost cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
920..................... Salaries and wages
921..................... Office supplies and
expenses
922..................... Administrative expense
transferred--credit
923..................... Outside services employed
924..................... Property insurance
925..................... Injuries and damages
926..................... Employee pensions and
benefits
928..................... Regulatory commission
expense
930.1................... General advertising
expenses
930.2................... Miscellaneous general
expense
931..................... Rents
403..................... Depreciation and
amortization expense
408..................... Taxes other than income
taxes
409..................... Income taxes
410..................... Provision for deferred
income taxes
411..................... Provision for deferred
income taxes--credit
411.5................... Investment Tax Credit
426.1................... Donations
426.5................... Other deductions
427..................... Interest on long-term debt
430..................... Interest on debt to
associate companies
431..................... Other interest expense
Total Expense
Compensation for Use of
Equity Capital
Interest on Debt to
Associate Companies
Total Cost of Service
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 75644]]
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Schedule XVII--Schedule of Expense Distribution by Department or Service Function
[Instruction: Indicate each department or service function. (See Instruction 01-3 General Structure of
Accounting System: Uniform System of Accounts).]
----------------------------------------------------------------------------------------------------------------
Department or
Account Description of items Total amount Overhead service function
----------------------------------------------------------------------------------------------------------------
920.................... Salaries and wages
921.................... Office supplies and expenses
922.................... Administrative expense transferred--
credit
923.................... Outside services employed
924.................... Property insurance
925.................... Injuries and damages
926.................... Employees pensions and benefits
928.................... Regulatory commission expenses
930.1.................. General advertising expenses
930.2.................. Miscellaneous general expenses
931.................... Rents
403.................... Depreciation and amortization
expenses
408.................... Taxes other than income taxes
409.................... Income taxes
410.................... Provision for deferred taxes
411.................... Provision for deferred taxes--credit
411.5.................. Investment tax credit
426.1.................. Donations
426.5.................. Other deductions
427.................... Interest on long-term debt
430.................... Interest on debt to associated
companies
431.................... Other interest expense
----------------------------------------------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Departmental Analysis of Salaries
--------------------------------------------------------------------------------------------------------------------------------------------------------
Name of Department Departmental Salary Expense Included in Amounts Billed to Others
indicate each department or ---------------------------------------------------------------------------------------------------- Number of personnel end
service function Total amount Parent company Other associates Nonassociates of year
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Miscellaneous General Expenses--Account 930.2
[Instructions: Provide a listing of the amount included in Account
930.2, ``Miscellaneous General Expenses'' classifying such expenses
according to their nature. Payments and expenses permitted by Section
321 (b)(2) of the Federal Election Campaign Act, as amended by Public
Law 94-283 in 1976 (2 U.S.C. 441(b)(2)) shall be separately classified.]
------------------------------------------------------------------------
Description Amount
------------------------------------------------------------------------
Total
------------------------------------------------------------------------
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
SCHEDULE XVIII--Notes to Statement of Income
Instructions: The space below is provided for important notes
regarding the statement of income or any account thereof. Furnish
particulars as to any significant increase in services rendered or
expenses incurred during the year. Notes related to financial statements
shown elsewhere in this report may be indicated here by reference.
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Organization Chart
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Methods of Allocation
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
Annual Statement of Compensation for Use of Capital Billed
ANNUAL REPORT OF------------------------------------------------------
For the Year Ended----------------------------------------------------
[[Page 75645]]
Signature Clause
Pursuant to the requirements of the Public Utility Holding Company
Act of 2005 and the rules and regulations of the Federal Energy
Regulatory Commission issued thereunder, the undersigned company has
duly caused this report to be signed on its behalf by the
undersigned officer thereunto duly authorized.
-----------------------------------------------------------------------
(Name of Reporting Company)
-----------------------------------------------------------------------
(Signature of Signing Officer)
-----------------------------------------------------------------------
(Printed Name and Title of Signing Officer)
Date:-----------------------------------------------------------------
[FR Doc. 05-24116 Filed 12-19-05; 8:45 am]
BILLING CODE 6717-01-P
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