[Federal Register Volume 70, Number 243 (Tuesday, December 20, 2005)]
[Rules and Regulations]
[Pages 75592-75645]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-24116]



[[Page 75591]]

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Part III





Department of Energy





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Federal Energy Regulatory Commission



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18 CFR Parts 365 and 366



Repeal of the Public Utility Holding Company Act of 1935 and Enactment 
of the Public Utility Holding Company Act of 2005; Final Rule

  Federal Register / Vol. 70, No. 243 / Tuesday, December 20, 2005 / 
Rules and Regulations  

[[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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \50\ APPA/NRECA Comments at 24.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \53\ Dominion Comments at 12.
    \54\ Scottish Power Comments at 4.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \60\ APPA/NRECA Comments at 25.
    \61\ Energy East Comments at 9.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \68\ Entergy Comments at 6.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \69\ Energy East Comments at 9.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \70\ APPA/NRECA Comments at 25.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \71\ APPA/NRECA Comments at 25-26.
    \72\ Energy East Comments at 10.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    \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.''
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \78\ APPA/NRECA Comments at 25-26.
    \79\ Georgia PSC Comments at 2.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.

---------------------------------------------------------------------------

[[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\
---------------------------------------------------------------------------

    \120\ APPA/NRECA Comments at 42-44.
    \121\ Santa Clara Comments at 23, TANC Comments at 23. See also 
Redding Comments at 3.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \156\ APPA/NRECA Comments at 29.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.

---------------------------------------------------------------------------

[[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.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \260\ Id. at 21-22.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \261\ 15 U.S.C. 80a-3(c)(8) (2000).
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    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: [email protected].)

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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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 [email protected]), or the Public Reference Room at 
202-502-8371, TTY 202-502-8659 (e-mail at 
[email protected]).

[[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\
---------------------------------------------------------------------------

    \267\ See 5 U.S.C. 804(2) (2000).
    \268\ See 5 U.S.C. 801(a)(1)(A) (2000).
---------------------------------------------------------------------------

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.

0
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]

0
1. Subchapter T, consisting of part 365, is removed and reserved.

0
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