[Federal Register Volume 73, Number 143 (Thursday, July 24, 2008)]
[Rules and Regulations]
[Pages 43066-43072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-16869]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 33

[Docket No. RM07-21-001; Order No. 708-A]


Blanket Authorization Under FPA Section 203

Issued July 17, 2008.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final rule; order on rehearing.

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SUMMARY: In this order on rehearing, the Federal Energy Regulatory 
Commission (Commission) affirms its determinations in part and grants 
rehearing in part of Order No. 708. Order No. 708 amended the 
Commission's regulations to establish blanket authorizations under 
section 203 of the Federal Power Act to facilitate investment in the 
electric industry and, at the same time, ensure that public utility 
customers are adequately protected from any adverse effects of such 
transactions.

EFFECTIVE DATES: This final rule; order on rehearing will become 
effective August 25, 2008.

FOR FURTHER INFORMATION CONTACT:
Carla Urquhart (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8496.
Mosby Perrow (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-6498.
Andrew Mosier (Technical Information), Office of Energy Market 
Regulation, Federal Energy Regulatory Commission, 888 First Street, 
NE., Washington, DC 20426, (202) 502-6274.
Ronald Lafferty (Technical Information), Office of Energy Market 
Regulation,

[[Page 43067]]

Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8026.

SUPPLEMENTARY INFORMATION:

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

Blanket Authorization Under FPA Section 203; Docket No. RM07-21-001: 
Order On Rehearing; Order No. 708-A

Issued July 17, 2008.

    1. This order addresses requests for rehearing and clarification of 
Order No. 708.\1\ That order amended Commission regulations pursuant to 
section 203 of the Federal Power Act (FPA) to provide for additional 
blanket authorizations under FPA section 203(a)(1).\2\ This order on 
rehearing affirms the five categories of blanket authorizations set 
forth in Order No. 708 with certain modifications, and, as discussed 
below, grants, in part, and denies, in part, the requests for 
rehearing.
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    \1\ Blanket Authorization Under FPA Section 203, Order No. 708, 
73 FR 11003 (Feb. 29, 2008), FERC Stats. & Regs. ]31,265 (2008).
    \2\ 16 U.S.C. 824b(a)(1).
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I. Background

    2. Based on comments to the Blanket Authorization Notice of 
Proposed Rulemaking,\3\ the Commission in Order No. 708 established 
five blanket authorizations to facilitate investment in the electric 
utility industry and, at the same time, ensure that public utility 
customers are adequately protected from any adverse effects of such 
transactions. First, a public utility was granted a blanket 
authorization under FPA section 203(a)(1) to transfer its outstanding 
voting securities to any holding company granted blanket authorization 
under 18 CFR 33.1(c)(2)(ii) if, after the transfer, the holding company 
and any of its associate or affiliate companies in aggregate will own 
less than 10 percent of the outstanding voting interests of such public 
utility.\4\ Second, a public utility was granted a blanket 
authorization under FPA section 203(a)(1) to transfer its outstanding 
voting securities to any holding company granted blanket authorization 
under 18 CFR 33.1(c)(8) \5\ if, after the transfer, the holding company 
and any of its associate or affiliate companies, in the aggregate, will 
own less than 10 percent of the outstanding voting interests of such 
public utility.\6\ Third, a public utility was granted a blanket 
authorization under FPA section 203(a)(1) to transfer its outstanding 
voting securities to any holding company granted blanket authorization 
in 18 CFR 33.1(c)(9).\7\ Fourth, a public utility was granted blanket 
authorization under FPA section 203(a)(1) to transfer its outstanding 
voting securities to any holding company granted a blanket 
authorization in 18 CFR 33.1(c)(10).\8\
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    \3\ Blanket Authorization Under FPA Section 203, 72 FR 41640 
(July 31, 2007), FERC Stats. & Regs. ] 32,619 (2007) (Blanket 
Authorization NOPR).
    \4\ Order No. 708, FERC Stats. & Regs. ] 31,265 at P 19 and 18 
CFR 33.1(c)(12).
    \5\ These holding companies' ownership of utilities includes 
only exempt wholesale generators (EWGs), foreign utility companies 
(FUCOs), and qualifying facilities (QFs).
    \6\ Order No. 708, FERC Stats. & Regs. ] 31,265 at P 40.
    \7\ Id. P 43. These holding companies are regulated by the Board 
of Governors of the Federal Reserve Bank or by the Comptroller of 
the Currency.
    \8\ Id. P 45. This authorization applies, in certain 
circumstances, to holding companies conducting underwriting 
activities or engaging in hedging transactions, generally limited to 
a 10 percent voting interest.
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    3. Fifth, a public utility was granted a blanket authorization 
under FPA section 203(a)(1) for the acquisition or disposition of a 
jurisdictional contract where neither the acquirer nor transferor has 
captive customers or owns or provides transmission service over 
jurisdictional transmission facilities, the contract does not convey 
control over the operation of a generation or transmission facility, 
the parties to the transaction are neither affiliates nor associate 
companies, and the acquirer is a public utility.\9\ In addition, Order 
No. 708 clarified certain aspects of existing blanket authorizations 
and clarified the terms ``affiliate'' and ``captive customers.''
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    \9\ Id. P 51-53 and 18 CFR 33.1(c)(16).
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II. Requests for Rehearing

    4. Order No. 708 was published in the Federal Register on February 
29, 2008.\10\ Timely requests for rehearing were filed by the American 
Public Power Association and the National Rural Electric Cooperative 
Association (APPA/NRECA), the Financial Institutions Energy Group 
(Financial Group), and the Electric Power Supply Association (EPSA). 
The Edison Electric Institute (EEI) filed a timely request for 
rehearing and clarification.
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    \10\ Supra note 1.
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    5. As discussed below, parties seek rehearing and/or clarification 
with respect to: (1) Extending the blanket authorization under 18 CFR 
33.1(c)(12) to cover public utility dispositions, not just to certain 
holding companies but also to non-holding companies; (2) the blanket 
authorization in 18 CFR 33.1(c)(16) pertaining to the transfer of 
jurisdictional contracts; (3) the definition and/or scope of hedging 
activities permitted under 18 CFR 33.1(c)(10); (4) the determination in 
Order No. 708 not to impose additional reporting requirements related 
to the new blanket authorizations; and (5) clarification of the 
existing blanket authorization under 18 CFR 33.1(6) (authorization of 
internal reorganization not affecting a traditional public utility) 
identified in the Supplemental Policy Statement.\11\
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    \11\ FPA Section 203 Supplemental Policy Statement, 72 FR 42277 
(August 2, 2007), FERC Stats. & Regs. ] 31,253 (2007), order on 
clarification and reconsideration, 122 FERC ] 61,157 (2008) 
(Supplemental Policy Statement).
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III. Discussion

A. Whether To Extend the Blanket Authorization in 18 CFR 33.1(c)(12) to 
Non-Holding Companies

    6. In Order No. 708, the Commission adopted the proposed blanket 
authorization from the Blanket Authorization NOPR without 
modification.\12\ In order to prevent public utilities from 
transferring less than 10 percent of their voting securities in 
successive transfers, the Commission retained the ``in aggregate'' 
limitation contained in 18 CFR 33.1(c)(12). In addition, the Commission 
rejected requests to extend the blanket authorization to ``any 
person.'' The Commission stated that these requests would expand the 
blanket authorization proposed in the Blanket Authorization NOPR beyond 
its original intent. The Commission also noted that if it were to 
expand the blanket authorization to ``any person,'' it would need to 
establish appropriate reporting requirements so that the Commission 
could monitor transfers to non-holding companies.\13\
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    \12\ Order No. 708, FERC Stats. & Regs. ] 31,265 at P 19. 18 CFR 
33.1(c)(12) states that a public utility will be granted a blanket 
authorization under section 203(a)(1) of the Federal Power Act to 
transfer its outstanding voting securities to any holding company 
granted blanket authorizations in 18 CFR 33.1(c)(2)(ii) of this 
section if, after the transfer, the holding company and any of its 
associate or affiliate companies in aggregate will own less than 10 
percent of the outstanding voting interests of the public utility.
    \13\ Order No. 708, FERC Stats. & Regs. ] 31,265 at P 20.
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Requests for Rehearing
    7. Financial Group requests rehearing of the Commission's decision 
declining to extend the blanket certificate to cover public utility 
dispositions to non-holding companies under 18 CFR 33.1(c)(12), subject 
to the same ``in aggregate'' limitations imposed on transfers to 
holding companies. Financial Group argues that the distinction between 
holding companies and non-holding companies is immaterial since the 
same benefits of reducing regulatory burdens and

[[Page 43068]]

encouraging investment that accrue when applying this blanket to 
distributions to a holding company also will occur if the blanket is 
applied to distributions to a non-holding company. Financial Group 
reasons that it is the nature of the interest being disposed--less than 
10 percent of the voting securities being held in the aggregate--and 
not whether the acquirer is a holding company that determines whether 
the disposition conveys control.
    8. Financial Group argues that the concern underlying the 
Commission's refusal to extend the blanket certificate to cover public 
utility dispositions to non-holding companies could be addressed 
without the need for issuing such blanket authorizations on a case-by-
case basis. Financial Group proposes reporting requirements for 
transactions involving non-holding companies that it says should be at 
least as helpful to the Commission as the preexisting reporting 
requirements applicable to holding companies.\14\ In addition, 
Financial Group argues that this expansion of the blanket certificate 
is not beyond the scope of the Blanket Authorization NOPR.
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    \14\ Financial Group proposes that within a specified time 
following consummation of the transaction (e.g., 30 days), the 
following information be reported: (1) Names of all parties to the 
transaction; (2) identification of both the pre-transaction and 
post-transaction voting security holdings (and the percentage 
ownership) in the public utility held by the acquirer and its 
associates or affiliate companies; (3) the date the transaction was 
consummated; (4) identification of any public utility or holding 
company affiliates of the parties to the transaction; and (5) (if 
the Commission has particular concerns as to whether such a 
transaction would result in cross-subsidization) the same type of 
statement currently required under 18 CFR 33.2(j)(1), which 
describes Exhibit M to an FPA section 203 filing.
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Commission Determination
    9. As a preliminary matter, and upon further consideration, we do 
not consider Financial Group's request to be beyond the scope of the 
Blanket Authorization NOPR. In general, the Commission is permitted to 
learn from comments submitted during its rulemaking process.\15\ In the 
Blanket Authorization NOPR, the Commission sought comments on proposals 
to reduce regulatory burdens and encourage investment under FPA section 
203 while simultaneously protecting the public interest. Financial 
Group's proposal to extend the proposed blanket authorization under 18 
CFR 33.1(c)(12) to cover ``any person'' rather than just certain 
holding companies is a variation of the originally proposed regulation, 
and therefore, is a logical outgrowth of the Blanket Authorization 
NOPR.\16\ Interested parties have had sufficient notice of the type of 
regulation that the Commission might adopt, and reasonably could have 
anticipated that other commenters might seek to expand the proposal. 
Moreover, commenters will have the opportunity for rehearing with 
respect to any modifications to the originally proposed section 
33.1(c)(12).
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    \15\ Daniel Int'l Corp. v. OSHA, 656 F.2d 925, 932 (4th Cir. 
1981) (The requirement of submission of a proposed rule for comment 
does not automatically generate a new opportunity for comment merely 
because the rule promulgated differs from the rule proposed, partly 
at least in response to submission).
    \16\ See Owner-Operator Independent Drivers Assoc., Inc. v. 
Federal Motor Carrier Safety Administration, 494 F.3d 188, 209 (DC 
Cir. 2007) (the object of the logical outgrowth test is one of fair 
notice).
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    10. Substantively, the distinction in 18 CFR 33.1(c)(12) between 
holding companies and non-holding companies is not determinative as to 
whether a particular transaction is consistent with the public 
interest, particularly if the ``in aggregate'' 10 percent limitation is 
in place to ensure that there is no likely opportunity for a transfer 
of control of a public utility. Moreover, expanding the 18 CFR 
33.1(c)(12) blanket authorization to include non-holding companies 
would reduce regulatory burdens and encourage investment without 
causing harm to competition or captive customers. With such an 
expansion, however, it is important for the Commission and the public 
to monitor these activities. As the Commission stated in Order No. 708, 
although there is a presumption that less than 10 percent of a 
utility's shares will not result in a change of control, this 
presumption is rebuttable.\17\ In some instances, the transfer of less 
than 10 percent of voting shares may constitute a transfer of control. 
Accordingly, we will extend the blanket authorization to ``any 
person,'' but we will require additional reporting for non-holding 
companies such as the requirements proposed by Financial Group.
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    \17\ Order No. 708, FERC Stats. & Regs. ] 31,265 at P 20.
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    11. Specifically, the Commission will amend its regulations in 18 
CFR 33.1(c)(12) to also authorize a public utility to transfer its 
outstanding voting securities to any person other than a holding 
company if, after the transfer, such person and any of its associate or 
affiliate companies will own less than 10 percent of the outstanding 
voting interests of such public utility. In addition, the Commission 
will adopt a reporting requirement for entities that transact under 
this blanket authorization. In order to properly tailor additional 
reporting requirements, however, we will issue concurrently with this 
order a request for supplemental comments that will seek comments on 
the narrow issue of the scope and form of the reporting requirements 
under the expanded blanket authorization. The expanded blanket 
authorization under 18 CFR 33.1(c)(12) will not become effective until 
a Commission decision on reporting requirements becomes effective. We 
further note that the Commission retains its jurisdiction under section 
203(b) of the FPA to issue further orders as appropriate with respect 
to transactions authorized under blanket authority.\18\
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    \18\ 16 U.S.C. 824b(b).
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B. Blanket Authorization for the Transfer of Jurisdictional Contracts 
Under 18 CFR 33.1(c)(16)

1. Order No. 708
    12. Order No. 708 extended a blanket authorization under FPA 
section 203(a)(1) for the acquisition and disposition of jurisdictional 
contracts where neither the acquirer nor the transferor has captive 
customers or owns or provides transmission service over jurisdictional 
transmission facilities, the contract does not convey control over the 
operation of a generation or transmission facility, the parties to the 
transaction are neither associate nor affiliate companies, and the 
acquirer is a public utility.\19\ Based, in part, on the Commission's 
experience with intra-corporate transfers of jurisdictional contracts 
and concerns raised in the Blanket Authorization NOPR, Order No. 708 
narrowed this blanket authorization somewhat from the proposal in the 
Blanket Authorization NOPR, to include the phrase ``the parties to the 
transaction are neither associate nor affiliate companies, and the 
acquirer is a public utility.'' \20\ The Commission also stated that 
this added condition (that parties to the transaction are neither 
affiliated nor associated companies) helps ensure that the transfer of 
such contracts would be consistent with the public interest.\21\
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    \19\ 18 CFR 33.1(c)(16).
    \20\ Order No. 708, FERC Stats. & Regs. ] 31,265 at P 51.
    \21\ Id. P 52.
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Requests for Rehearing
    13. APPA/NRECA argues that the Commission has not shown how this 
blanket authorization is consistent with the public interest. If the 
blanket authorization is not retracted, APPA/NRECA asks the Commission 
to narrow its scope by excluding contracts in

[[Page 43069]]

which a load-serving entity (LSE) is the purchaser and does not consent 
to the subject transfer. It contends that the existing authorization 
creates a situation in which public power utilities, cooperatives and 
other LSEs might have their contract sold without their consent and 
without specific Commission approval. It claims that these LSEs rely on 
these contracts for reliable power and the blanket authorization would 
allow for the transfer of the contract from a well-established marketer 
or generator with whom the LSE originally contracted to an entity with 
less assurance of its ability to perform. In addition, APPA/NRECA 
argues that the Commission's reasoning in dismissing the same argument 
in Order No. 708 is flawed.
    14. Further, APPA/NRECA claims that this blanket authorization 
itself could undermine LSEs' bargaining power and their ability to 
enforce their contractual rights. It notes that many standard power 
contracts contain ``boilerplate'' language that requires a buyer's 
consent for the transfer of a contract not to be ``unreasonably 
withheld.'' It argues that if the Commission grants this blanket 
authorization on the basis that it is consistent with the public 
interest, sellers could then argue that it is unreasonable for a buyer 
to withhold its consent for a given transfer. Thus, APPA/NRECA claims 
that this blanket authorization could force LSEs to bargain for 
stronger prohibitions limiting assignment in their contracts at the 
likely expense of other contract features and to enforce such language 
by litigation when necessary.
    15. EPSA and EEI request the removal of the clause ``the parties to 
the transaction are neither associate nor affiliate companies'' from 
the blanket authorization granted in 18 CFR 33.1(c)(16). EPSA and EEI 
state that the clause was added in Order No. 708 without being 
previously proposed in the Blanket Authorization NOPR or sought by any 
commenter. In addition, both EPSA and EEI argue that the clause 
conflicts with the blanket orders that the Commission granted in Order 
No. 669-A.\22\ EPSA argues that the clause limits blanket certificate 
availability to transactions involving only non-affiliated entities, 
and, therefore, it reverses the blanket certificate for internal 
reorganizations granted in 18 CFR 33.1(c)(6)Sec.  \23\ without making a 
finding that Order No. 669-A is no longer valid. EEI argues that the 
clause undercuts the blanket certificate authorizing the transfer of 
wholesale market-based contracts to other affiliates in 18 CFR 
33.1(c)(11).\24\
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    \22\ Transactions Subject to FPA Section 203, Order No. 669, 71 
FR 1348 (January 6, 2006), FERC Stats. & Regs. ] 31,200 (2005), 
order on reh'g, Order No. 669-A, 71 FR 28422 (May 16, 2006), FERC 
Stats. & Regs. ] 31,214 (2006), order on reh'g, Order No. 669-B, 71 
FR 42579 (July 27, 2006), FERC Stats. & Regs. ] 31,225 (2006).
    \23\ 18 CFR 33.1(c)(6) states that any public utility or any 
holding company in a holding company system that includes a 
transmitting utility or an electric utility will be granted a 
blanket authorization under sections 203(a)(1) or 203(a)(2) of the 
FPA, as relevant, for internal corporate reorganizations that do not 
result in the reorganization of a traditional public utility that 
has captive customers or that owns or provides transmission service 
over jurisdictional transmission facilities, and that do not present 
cross-subsidization issues.
    \24\ 18 CFR 33.1(c)(11) states any public utility will be 
granted a blanket authorization under section 203(a)(1) of the FPA 
to transfer a wholesale market-based rate contract to any other 
public utility affiliate that has the same ultimate upstream 
ownership, provided that neither affiliate is affiliated with a 
traditional public utility with captive customers.
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    16. EPSA also argues that the clause ``and the acquirer is a public 
utility'' should be removed. EPSA argues that there is no concern 
regarding competition or cross-subsidization when one affiliate 
transfers a wholesale contract to another affiliate, as long as the 
affiliates involved are not themselves traditional public utilities 
with captive customers. EPSA also maintains that the clause creates an 
unnecessary burden on the Commission and unnecessary delay and costs 
for the applicants.
    17. EEI requests that if rehearing is not granted, the Commission 
specify that 18 CFR 33.1(c)(16) does not override other blanket 
authorizations or require approval of a transaction if another blanket 
authorization such as 18 CFR 33.1(c)(11) (authorizing the transfers of 
wholesale market-based rate contracts to other affiliates) applies.
Commission Determination
    18. APPA/NRECA raised no new arguments on rehearing, and its 
request that the blanket authorization in 18 CFR 33.1(c)(16) be 
retracted or modified is denied.
    19. We found in Order No. 708 that the transfer of a wholesale 
power contract which does not provide for the transfer of control of 
generation or transmission cannot affect horizontal or vertical market 
power. In addition, we note that Order No. 708 added a condition to 
address, in part, the concerns raised by APPA/NRECA.\25\ We also found 
that, with the modification proposed by APPA/NRECA, the transfer of a 
wholesale power contract from one party that does not have captive 
customers or own or provide transmission service over jurisdictional 
transmission facilities, to another party that also does not have 
captive customers or own or provide transmission service over 
jurisdictional transmission facilities, cannot affect the rates of 
captive customers or transmission customers (and therefore has no rate 
or cross-subsidization impacts). As we reasoned in Order No. 708, in 
response to the same arguments that APPA/NRECA raises again on 
rehearing, purchasers can protect their interests by exercising 
contractual provisions, and, if necessary, by filing an FPA section 206 
complaint.\26\ We note that the issuance of this blanket authorization 
should not be construed as an expression of opinion by the Commission 
as to whether it is (or is not) reasonable for an entity to withhold 
consent as to a particular proposed transfer. Moreover, as we noted in 
Order No. 708, APPA/NRECA's concerns regarding the potential effect of 
the blanket on the bargaining power of LSEs is a speculative matter.
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    \25\ APPA/NRECA's comments led to adding to the blanket 
authorization the condition that ``* * *neither the acquirer nor 
transferor has captive customers or owns or provides transmission 
service over jurisdictional transmission facilities* * *'' See Order 
No. 708, FERC Stats. & Regs. ] 31,265 at P 48, 51.
    \26\ Id. P 52.
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    20. The Commission grants EPSA's and EEI's requests to remove the 
clause ``the parties to the transaction are neither associate nor 
affiliate companies'' from 18 CFR 33.1(c)(16). EPSA and EEI have 
convincingly explained why the clause is inappropriate. In particular, 
where neither the acquirer nor the transferor has captive customers or 
owns or provides transmission service over jurisdictional transmission 
facilities, and the contract does not convey control over the operation 
of a generation or transmission facility, the price of the 
jurisdictional contract's transfer does not affect the rates of captive 
customers or transmission customers and therefore has no rate or cross-
subsidization impact affecting captive generation customers or 
transmission customers.
    21. EPSA's request to remove from 18 CFR 33.1(c)(16) the clause 
``and the acquirer is a public utility'' is denied. Order No. 708 added 
this clause because of the possibility of a jurisdictional contract 
being transferred to a non-jurisdictional entity, in which case the 
Commission would lose the ability to regulate the contract and parties 
involved.\27\ EPSA has presented no

[[Page 43070]]

reason why the clause is not necessary to prevent that possibility.
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    \27\ Id. P 51.
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C. Hedging

1. Order No. 708
    22. In Order No. 708, the Commission extended to public utilities a 
blanket authorization to transfer securities to holding companies that 
have blanket authorizations to acquire public utility securities under 
FPA section 203(a)(2) for certain underwriting or hedging purposes.\28\ 
In doing so, the Commission observed that the condition for the 
parallel blanket authorization under FPA section 203(a)(2), limiting 
the acquiring entity to a voting right of less than 10 percent of the 
relevant class of securities, should ensure that any disposing entity 
facilitating such transactions does not affect a disposition or change 
in control of the issuer of the public utility securities.\29\
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    \28\ 18 CFR 33.1(c)(15) states that a public utility is granted 
a blanket authorization under section 203(a)(1) of the FPA to 
transfer its outstanding voting securities to any holding company 
granted blanket authorization in 18 CFR 33.1(c)(10). 18 CFR 
33.1(c)(10) states that any holding company, or a subsidiary of that 
company, is granted a blanket authorization under section 203(a)(2) 
of the FPA to acquire any security of a public utility or a holding 
company that includes a public utility: (i) for purposes of 
conducting underwriting activities, subject to the condition that 
holdings that the holding company or its subsidiary are unable to 
sell or otherwise dispose of within 45 days are to be treated as 
holdings as principal and thus subject to a limitation of 10 percent 
of the stock of any class unless the holding company or its 
subsidiary has within that period filed an application under section 
203 of the FPA to retain the securities and has undertaken not to 
vote the securities during the pendency of such application; and the 
parent holding company files with the Commission on a public basis 
and within 45 days of the close of each calendar quarter, both its 
total holdings and its holdings as principal, each by class, unless 
the holdings within a class are less than one percent of outstanding 
shares, irrespective of the capacity in which they were held; (ii) 
for purposes of engaging in hedging transactions, subject to the 
condition that if such holdings are 10 percent or more of the voting 
securities of a given class, the holding company or its subsidiary 
shall not vote such holdings to the extent that they are 10 percent 
or more.
    \29\ Order No. 708, FERC Stats & Regs. ] 31,265 at P 45 (citing 
Order No. 669 at P 132).
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Requests for Rehearing
    23. APPA/NRECA argues that this blanket authorization is contrary 
to the law and that the Commission should only allow such transactions 
on a case-by-case basis, with full disclosure of the specific business 
arrangements being contemplated. Because the Commission did not define 
``hedging transaction(s),'' APPA/NRECA contends that the Commission 
cannot reasonably determine that the authorization is consistent with 
the public interest. It further argues that this blanket authorization, 
like the parallel blanket authorization under FPA section 203(a)(2), 
does not assure that the hedging transaction is only incidental to the 
acquirer's main business, since the blanket authorization does not 
require that the hedging transaction relate to the utility, power or 
energy business. APPA/NRECA believes that ratepayers should not be 
exposed to the complex and risky transactions sometimes undertaken by 
financial market participants to the harm of innocent third parties.
Commission Determination
    24. While the Commission agrees with APPA/NRECA's general 
proposition that electric ratepayers should not be exposed to 
unnecessary harm caused by risky transactions of financial market 
participants, we disagree that the blanket authorizations previously 
granted to holding companies in Order No. 669-A (18 CFR 33.1(c)(10)), 
or the parallel authorization granted to public utilities in Order No. 
708 (18 CFR 33.1(c)(15)), will cause such harm.
    25. Nor do we believe that the authorization in Order No. 708 is 
contrary to law. These authorizations are limited, and any hedging in 
public utility securities that is within the scope of section 203 is 
allowed only to the extent that it falls under one of the Commission's 
blanket authorizations or a specific authorization granted by the 
Commission on a case-by-case basis. Specifically, an existing condition 
in 18 CFR 33.1(c)(10)(ii) limits the voting ability of the entity 
acquiring securities for hedging purposes, so transactions under the 
new blanket authorizations should not result in a change in control of 
a public utility. Furthermore, the first part of the blanket 
authorization, 18 CFR 33.1(c)(10)(i), concerns underwriting and is 
directed at financial entities such as a bank, investment bank, or 
broker/dealer that engages in underwriting activities that may involve 
public utilities, but this authorization also has a 10 percent 
limitation and is subject to a reporting requirement. It is unlikely 
that the acquirers in the hedging transactions authorized would be 
public utilities because most holding companies are not also public 
utilities as most do not operate jurisdictional facilities. In fact, we 
are unaware of any public utility with captive customers that engages 
in hedging transactions involving the securities of other public 
utilities.\30\ Therefore, we believe that the potential for harm to 
ratepayers of public utilities as a result of the blanket authorization 
is minimal.
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    \30\ We note that it was the investment firm Morgan Stanley 
Capital Group, Inc., not a franchised public utility, that requested 
rehearing of Order No. 669 to request the blanket authorization 
regarding hedging for a non-bank holding company. See Order No. 669-
A, FERC Stats. & Regs. ] 31,214 at P 119-120.
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    26. In addition, it should be noted that states oversee cost 
recovery associated with their franchised public utilities' hedging 
activities involving purchases of power or fuel as part of an overall 
purchasing strategy in the interests of ratepayers. We think it would 
be unlikely that a state regulatory body would authorize the recovery 
from ratepayers of the costs incurred by one public utility to engage 
in hedging activities concerning the securities of another public 
utility. We further note that the Commission is not making any finding 
as to whether the costs associated with such hedging are appropriately 
recovered in rates.
    27. We reject APPA/NRECA's request to deny any blanket authority 
for hedging transactions. APPA/NRECA's arguments, in large part, are a 
collateral attack of Order No. 669-A. Order No. 669-A determined that a 
blanket authorization under FPA section 203(a)(2), involving hedging 
for holding companies was in the public interest because such a blanket 
authorization would not give the acquiring entity additional market 
power or enable it to undermine competition or disadvantage captive 
customers. The Commission agreed that the blanket authority would 
promote the public interest by bringing more capital investment to the 
utility industry. The Commission also found that the condition removing 
the holder's power to vote the securities held for hedging purposes to 
the extent they are 10 percent or more of the securities in the class 
outstanding, even though the amount held for hedging is not limited, 
would address its concerns regarding control.\31\ Subject to certain 
limitations, Order No. 708 merely granted the mirror image of this 
blanket for public utilities under FPA section 203(a)(1), in part, 
because the Commission had already determined in Order No. 669-A that 
there were adequate controls on these transactions.
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    \31\ Order No. 669-A, FERC Stats. & Regs. ] 31,214 at P 121, 
132.
---------------------------------------------------------------------------

    28. Further, the Commission will not codify a definition of 
``hedging'' in this proceeding. This decision is based in part on our 
observation that hedging activities may be accomplished in a variety of 
ways and defining hedging may inappropriately limit it or may create 
situations that are inconsistent with usage by other government 
agencies. In general, hedging is an approach to risk management that 
uses

[[Page 43071]]

financial instruments to manage identified risk. We note that various 
regulators have defined ``hedging'' and have promulgated rules and 
policies concerning such activities.\32\ We will generally follow those 
principles with respect to the blanket authorizations granted under our 
rules.
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    \32\ For example, the Commodities Futures Trading Commission, 
defines bona fide hedging transactions in its regulations. 17 CFR 
1.3(z). The Internal Revenue Service defines a qualified hedging 
transaction in its regulations. 26 CFR 1.988-5. The Financial 
Accounting Standards Board, the New York Mercantile Exchange, and 
the Chicago Mercantile Exchange all have policies concerning and 
defining hedging.
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D. Other

1. Reporting Requirements
Requests for Rehearing
    29. In Order No. 708, the Commission declined to impose additional 
reporting requirements in connection with the new blanket 
authorizations.\33\ Although the Commission agreed with APPA/NRECA's 
argument in its comments on the Blanket Authorization NOPR that 
additional reporting requirements could provide greater efficiency, on 
balance, the Commission determined that the potential burdens would 
outweigh any efficiency gains.\34\ In its comments on rehearing, APPA/
NRECA reasserts its request that the Commission require public 
utilities to report all dispositions of securities undertaken pursuant 
to a blanket authorization on the ground that the Commission failed to 
explain why it dismissed its request in Order No. 708.
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    \33\ Order No. 708, FERC Stats & Regs. ] 31,265 at P 33.
    \34\ Id.
---------------------------------------------------------------------------

    30. It also asks the Commission to impose a requirement that public 
utilities certify their continued compliance with any ``in aggregate'' 
limitation in light of each new transaction. APPA/NRECA argues that, 
since the only reporting requirement is under 18 CFR 33.1(c)(2), a 
transfer of control in a public utility could occur over a series of 
transactions without the Commission's knowledge. Accordingly, APPA/
NRECA asserts that the Commission cannot be sure that it is being 
provided with all the information necessary to ensure that a transfer 
of control does not occur.
Commission Determination
    31. APPA/NRECA has not presented any convincing reason to impose 
additional reporting requirements at this time and therefore its 
request for rehearing is denied. We first point out that APPA/NRECA is 
incorrect that there are no reporting requirements under 18 CFR 
33.1(c)(9) (authorization of certain activities by a company regulated 
by the Board of Governors of the Federal Reserve Bank or by the 
Comptroller of the Currency) and 18 CFR 33.1(c)(10) (authorization for 
a holding company to engage in certain underwriting and hedging 
activities).\35\ Further, the Commission does not believe that reports 
by a company regulated by the Board of Governors of the Federal Reserve 
Bank or by the Comptroller of the Currency are necessary when 
securities are held as a fiduciary or as principal for derivatives 
hedging purposes, since such activities by the holding company are 
overseen and closely monitored by the Board of Governors of the Federal 
Reserve Bank or by the Office of the Comptroller of the Currency as 
described in 18 CFR 33.1(c)(9). In addition, holding of shares as 
collateral for a loan does not change control of a public utility. 
Although 18 CFR 33.1(c)(10)(ii) does not have an explicit reporting 
requirement when securities are held for purposes of engaging in 
hedging transactions, this authorization does limit voting ability of 
the company acquiring the securities, eliminating the concern over 
transfer of control over a public utility. The transfer of wholesale 
contracts under 18 CFR 33.1(c)(16) is subject to section 205 filing 
requirements, which include, among other things, designation of the 
jurisdictional entity that will be the supplier under the contract.\36\
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    \35\ The reporting requirements under 18 CFR 33.1(c)(9)(iv) and 
18 CFR 33.1(c)(10)(i) require the parent holding company to file 
within 45 days of the close of each calendar quarter, both its total 
holdings and its holdings as principal, each by class, unless the 
holdings within a class are less than one percent of outstanding 
share, irrespective of the capacity in which they were held.
    \36\ Order No. 669-A at P 83.
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    32. APPA/NRECA was correct in stating that 18 CFR 33.1(c)(8) 
(authorization for a person being a holding company solely with respect 
to EWGs, FUCOs, or QFs to acquire the securities of additional EWGs, 
FUCOs, or QFs) does not include a reporting requirement. The parallel 
authorization to public utilities under 18 CFR 33.1(c)(13), however, 
limits the acquiring holding company and its affiliates to less than 10 
percent of the outstanding voting securities of the public utility. As 
we stated in Order No. 708, we believe this protection ensures that 
this blanket authorization is in the public interest.
    33. The Commission does not, however, foreclose the possibility of 
imposing additional reporting requirements in the future, should 
circumstances change and it become apparent that additional reporting 
requirements would help us better monitor industry transactions that 
could adversely affect public utilities or their captive customers or 
transmission customers. We also note that, as discussed above, the 
Commission is concurrently issuing a supplemental request for comments 
on the narrow issue of reporting requirements for the extension of 18 
CFR 33.1(c)(12) to cover public utility dispositions to non-holding 
companies.
2. Clarification of the Supplemental Policy Statement
Request for Clarification
    34. In the Supplemental Policy Statement,\37\ the Commission 
declined to grant a generic blanket authorization for internal 
corporate reorganizations for the ``transfer of assets'' from one non-
traditional utility subsidiary (for example, power marketer, EWG, or 
qualifying facility) to another non-traditional utility subsidiary, 
because the Commission cannot be certain in every situation of the 
impact of such transactions on utility affiliates.
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    \37\ Supplemental Policy Statement at P 38.
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    35. EEI requests that the Commission clarify that the internal 
corporate reorganization of non-traditional public utilities, such as a 
merger or consolidation, in which a single entity survives the 
transaction does not constitute the ``transfer of assets'' that the 
Commission has excluded from the blanket authorization. It argues that 
the Commission made clear in Order No. 669-A that the blanket 
authorization covers internal corporate reorganizations of non-
traditional utilities whether they are accomplished through the 
acquisition of securities or through a merger or consolidation. It also 
argues that internal corporate reorganizations of non-traditional 
utilities in the form of mergers and consolidations will not cause an 
anticompetitive effect or present cross-subsidization issues because, 
in such transactions, ownership control over the assets will simply go 
from indirect to direct. EEI also notes that in reorganizations in 
which only one of the transacting entities survives the transaction, 
such as a merger or consolidation, ownership of jurisdictional assets 
by the surviving entity is assumed by law.
    36. EEI maintains that the Commission's concern over the transfer 
of assets in a reorganization applies not to internal corporate 
reorganizations of non-traditional utilities in the form of mergers and 
consolidations, but to the contrasting type of reorganization where

[[Page 43072]]

assets are transferred from one affiliate to another and both legal 
entities survive the transfer. EEI argues that if 18 CFR 33.1(c)(6) 
(authorization of internal reorganization not affecting a traditional 
public utility) were not interpreted so as to authorize the mergers of 
EWGs and other public utilities that do not have franchised territories 
simply because jurisdictional assets were transferred by operation of 
law in such mergers, there would be no practical distinction in the way 
the two types of reorganizations are treated under the 18 CFR 
33.1(c)(6) blanket authorization.
Commission Determination
    37. We grant EEI's request for clarification that the blanket 
authorization in 18 CFR 33.1(c)(6) applies to transactions involving 
the transfer of assets from one non-traditional utility subsidiary 
(i.e., a public utility that does not have captive customers and does 
not own or control transmission facilities) to another non-traditional 
utility subsidiary when only one of the two non-traditional utility 
subsidiaries survives the transaction. We find that such a transaction 
will be consistent with the public interest and not entail cross-
subsidization issues. Such a transaction would have no adverse effect 
on competition because market power is analyzed by the corporate family 
on an aggregate basis rather than on an individual corporate subsidiary 
basis (e.g., the transfer of the ownership of a generator between 
wholly-owned subsidiaries has no effect on the potential market power 
of the parent corporation). Such a transaction would also have no 
adverse effect on rates, regulation, or inappropriate cross-
subsidization because the participants in the transaction neither have 
captive customers nor own or control transmission facilities.

IV. Information Collection Statement

    38. The Office of Management and Budget (OMB) regulations require 
that OMB approve certain information collection requirements imposed by 
an agency.\38\ The Final Rule's information collections were approved 
under OMB control no. 1902-0082. While this rule clarifies aspects of 
the existing information collection requirements, it does not add to 
these requirements. Accordingly, a copy of this Final Rule will be sent 
to OMB for informational purposes only.
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    \38\ 5 CFR 1320.12.
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V. Document Availability

    39. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's 
Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. 
Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426.
    40. From FERC's Home Page on the Internet, this information is 
available on 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.
    41. User assistance is available for eLibrary and FERC's Web site 
during normal business hours from FERC Online Support at 202-502-6652 
(toll free at 1-866-208-3676) or e-mail at [email protected], 
or the Public Reference Room at (202) 502-8371, TTY 202-502-8659. E-
mail the Public Reference Room at [email protected].

VI. Effective Date

    42. These revisions in this order on rehearing are effective August 
25, 2008.

List of Subjects in 18 CFR Part 33

    Electric utilities, Reporting and recordkeeping requirements, 
Securities.

    By the Commission.
Kimberly D. Bose,
 Secretary.


0
In consideration of the foregoing, the Commission amends Part 33, 
Chapter I, Title 18, Code of Federal Regulations, to read as follows:

PART 33-APPLICATIONS UNDER FEDERAL POWER ACT SECTION 203

0
1. The authority citation for part 33 continues to read as follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352; Pub. L. 109-58, 119 Stat. 594.

0
2. In 33.1, paragraph (c)(12) is revised and paragraph (c)(16) is added 
to read as follows:


Sec.  33.1  Applicability, definitions, and blanket authorizations.

* * * * *
    (c) * * *
    (12) A public utility is granted a blanket authorization under 
section 203(a)(1) of the Federal Power Act to transfer its outstanding 
voting securities to:
    (i) any holding company granted blanket authorizations in paragraph 
(c)(2)(ii) of this section if, after the transfer, the holding company 
and any of its associate or affiliate companies in aggregate will own 
less than 10 percent of the outstanding voting interests of such public 
utility; or
    (ii) any person other than a holding company if, after the 
transfer, such person and any of its associate or affiliate companies 
in aggregate will own less than 10 percent of the outstanding voting 
interests of such public utility.
* * * * *
    (16) A public utility is granted a blanket authorization under 
section 203(a)(1) of the Federal Power Act for the acquisition or 
disposition of a jurisdictional contract where neither the acquirer nor 
transferor has captive customers or owns or provides transmission 
service over jurisdictional transmission facilities, the contract does 
not convey control over the operation of a generation or transmission 
facility, and the acquirer is a public utility.

 [FR Doc. E8-16869 Filed 7-23-08; 8:45 am]
BILLING CODE 6717-01-P