Rule: Electric Utilities (Federal Power Act) : Section 203 Transactions Supplemental Policy Statement

Federal Register / Vol. 72, No.
148 / Thursday, August 2, 2007 / Rules and Regulations 42277
streamline procedures. NFA cites have a significant economic impact on Authority: 7 U.S.C. 4a, 12a, and 21.
Commission Rules under 17 CFR Part a substantial number of small ■ 2. Section 171.9 is amended by
10, which allows for service of businesses. revising paragraph (b) to read as follows:
documents by fax in enforcement
C. Paperwork Reduction Act § 171.9 Service
proceedings. In addition, it cites its own
rules governing arbitration, compliance The amendments to Part 171 rules do * * * * *
and disciplinary cases as allowing not impose a burden within the (b) Manner of Service: Service may be
service by both fax and e-mail. Thus, meaning and intent of the Paperwork made by personal delivery (effective
NFA asserts, to allow service by fax and Reduction Act of 1980, 44 U.S.C. 3501, upon receipt), mail (effective upon
e-mail in Part 171 would make the et seq. deposit), facsimile (effective upon
process more efficient. receipt) or electronic mail (effective
D. Cost-Benefit Analysis upon receipt). When service is effected
After reviewing NFA’s proposed
amended language and its justifications Section 15(a) of the Commodity by mail, the time within which the
for the proposal, the Commission has Exchange Act, 7 U.S.C. 19(a), requires person served may respond thereto shall
decided to adopt NFA’s request in its the Commission to consider the costs be increased by five days. Parties who
entirety. Amending the 17 CFR 171.9(b) and benefits of its action before issuing consent to accepting service of
to allow for service by fax and e-mail a new regulation. Section 15(a) further documents by electronic means in the
will(a) enhance the efficiency of specifies that costs and benefits shall be underlying NFA action also consent to
proceedings under Part 171; and (b) evaluated in light of five broad areas of accepting service by the same means in
comport with the various capabilities of market and public concern: (1) proceedings under this Part 171.
today’s changing world. Protection of market participants and * * * * *
the public; (2) efficiency,
Related Matters Issued in Washington, DC on the 26th of
competitiveness, and financial integrity July 2007, by the Commission.
A. No Notice Is Required Under 5 U.S.C. of futures markets; (3) price discovery;
Eileen A. Donovan,
553 (4) sound risk management practices;
Acting Secretary of the Commission.
and (5) other public interest
The Commission has determined that considerations. Accordingly, the [FR Doc. E7–14922 Filed 8–1–07; 8:45 am]
this amendment to Part 171 is exempt Commission can, in its discretion, give BILLING CODE 6351–01–P
from the provisions of the greater weight to any one of the five
Administrative Procedure Act, 5 U.S.C. enumerated areas of concern and can, in
553, which generally require notice of its discretion, determine that DEPARTMENT OF ENERGY
proposed rulemaking and provide other notwithstanding its costs, a particular
opportunities for public participation. rule is necessary or appropriate to Federal Energy Regulatory
However, 5 U.S.C. 553 gives an agency protect the public interest or to Commission
discretion not to provide notice for effectuate any of the provisions, or
‘‘rules of agency organization, accomplish any of the purposes, of the 18 CFR Part 33
procedure, or practice.’’ Notice and Commodity Exchange Act. [Docket No. PL07–1–000]
public procedure are unnecessary in The amendments to Part 171 will not
this case. The proposed amendment, if create any significant change in the FPA Section 203 Supplemental Policy
made effective immediately, will Commission’s appellate process or Statement
actually promote efficiency and impose new burdens or costs thereon. In
facilitate the Commission’s core Issued July 20, 2007.
fact, the amendments should enhance
mission. For the above reasons, the AGENCY: Federal Energy Regulatory
the protection of market participants
notice requirements under 5 U.S.C. 553 Commission, DOE.
and the public by making service more
are inapplicable. certain, faster and cheaper. ACTION: Policy statement.
B. Regulatory Flexibility Act After considering these above factors, SUMMARY: The Federal Energy
the Commission has determined to Regulatory Commission is providing
The Regulatory Flexibility Act amend Part 171, as set forth below.
(‘‘RFA’’), 5 U.S.C. 601 et seq., requires guidance regarding future
agencies with rulemaking authority to List of Subjects in 17 CFR Part 171 implementation of section 203 of the
consider the impact those rules will Federal Power Act. In the Supplemental
Administrative practice and
have on small businesses. With respect Policy Statement the Commission
procedure, Commodity exchanges,
to persons seeking Commission reviews adopts policies and provides
Commodity futures.
of NFA adjudicatory decisions, the clarifications intended to continue the
amendments will impose no additional ■ In consideration of the following, and encouragement of beneficial utility
regulatory burden. Commission review pursuant to authority contained in the industry investment while also
of NFA disciplinary and membership Commodity Exchange Act, the providing for effective customer
denial actions has been carried out Commission hereby amends chapter I of protections, including working in a
pursuant to 17 CFR Part 171 since 1990. title 17 of the Code of Federal complementary fashion with the states
These amendments to 17 CFR 171.9(b) Regulations to read as follows: in protecting customers.
do not present any significant changes DATES: Effective Date: This
PART 171–RULES RELATING TO Supplemental Policy Statement is
and will in fact ease the regulatory REVIEW OF NATIONAL FUTURES
burden by providing more options, effective July 20, 2007.
ASSOCIATION DECISIONS IN
greater certainty and predictability DISCIPLINARY, MEMBERSHIP DENIAL, FOR FURTHER INFORMATION CONTACT:
concerning manners of service under Carla Urquhart (Legal Information),
jlentini on PROD1PC65 with RULES
REGISTRATION AND MEMBER

Part 171. Accordingly, the Acting RESPONSIBILITY ACTIONS Office of the General Counsel, Federal
Chairman, on behalf of the Commission, Energy Regulatory Commission, 888
hereby certifies, pursuant to 5 U.S.C. ■ 1. The authority citation for Part 171 First Street, NE., Washington, DC 20426,
605(b), that the amendments will not continues to read as follows: (202) 502–8496.
VerDate Aug<31>2005 16:10 Aug 01, 2007 Jkt 211001 PO 00000 Frm 00007 Fmt 4700 Sfmt 4700 E:\FR\FM\02AUR1.SGM 02AUR1
42278 Federal Register / Vol. 72, No. 148 / Thursday, August 2, 2007 / Rules and Regulations
Roshini Thayaparan (Legal issues, including the protection of 203 transaction 10 is consistent with the
Information), Office of the General captive customers against inappropriate public interest: effect on competition,
Counsel, Federal Energy Regulatory cross-subsidization and the need to effect on rates, and effect on regulation.
Commission, 888 First Street, NE., provide sufficient flexibility to In 2000, the Commission issued the
Washington, DC 20426, (202) 502–6857. encourage industry investment that Filing Requirements Rule,11 which
David Hunger (Technical benefits customers, the Commission updated the filing requirements under
Information), Office of Energy Markets finds that it is appropriate to provide 18 CFR Part 33 of the Commission’s
and Reliability, Federal Energy guidance in this Policy Statement regulations for section 203 applications.
Regulatory Commission, 888 First regarding future implementation of Among other things, the Filing
Street, NE., Washington, DC 20426, section 203. We clarify that this Policy Requirements Rule codified the
(202) 502–8148. Statement supplements, and does not Commission’s screening approach to
Andrew P. Mosier, Jr. (Technical replace, any part of the Commission’s quickly identify mergers that may raise
Information), Office of Energy Markets 1996 Merger Policy Statement. horizontal competitive concerns,
and Reliability, Federal Energy provided specific filing requirements
2. This Policy Statement is one of
Regulatory Commission, 888 First consistent with Appendix A of the 1996
three actions being taken based on the
Street, NE., Washington, DC 20426, Merger Policy Statement, established
Commission’s experience implementing
(202) 502–6274. guidelines for vertical competitive
amended FPA section 203 and PUHCA
SUPPLEMENTARY INFORMATION: analysis, and set forth filing
2005, as well as the record from the
Before Commissioners: Joseph T. Kelliher, requirements for mergers that
Chairman; Suedeen G. Kelly, Marc Spitzer, Commission’s December 7, 2006 and
March 8, 2007 technical conferences potentially raise vertical market power
Philip D. Moeller, and Jon Wellinghoff.
regarding section 203 and PUHCA 2005. concerns. The revised filing
FPA Section 203 Supplemental Policy In addition, in separate orders, the requirements are in effect today, as
Statement Commission is concurrently issuing a recently modified (discussed below),
1. The Commission is issuing this Notice of Proposed Rulemaking and they assist the Commission in
Policy Statement as a supplement to the proposing to grant a limited blanket determining whether section 203
Commission’s rulemakings issued in authorization for certain dispositions of transactions are consistent with the
2006 to implement provisions of the jurisdictional facilities under FPA public interest, provide more certainty
Energy Policy Act of 2005 1 and also as section 203(a)(1) 6 and a Notice of to applicants regarding what showings
a supplement to its 1996 Merger Policy Proposed Rulemaking proposing to must be made to satisfy the
Statement.2 The 2006 rulemakings codify restrictions on affiliate Commission’s concerns under section
addressed amendments to the transactions between franchised public 203, and expedite the Commission’s
Commission’s corporate review utilities with captive customers and review of such applications.
authority under section 203 of the their market-regulated power sales 5. The scope of the Commission’s
Federal Power Act (FPA),3 the repeal of affiliates or non-utility affiliates.7 section 203 review was expanded by
the Public Utility Holding Company Act EPAct 2005. Among other things,
of 1935 4 and the enactment of the I. Background amended section 203: (1) Expands the
Public Utility Holding Company Act of 3. In 1996, the Commission issued the Commission’s review authority to
2005.5 Based on our experience in 1996 Merger Policy Statement updating include authority over certain holding
implementing the new laws thus far, and clarifying the Commission’s company mergers and acquisitions, as
and on the two technical conferences in procedures, criteria and policies well as certain public utility
which industry participants and state concerning public utility mergers under acquisitions of generating facilities; (2)
commissioners provided input on key section 203 of the FPA.8 The purpose of requires that, prior to approving a
the 1996 Merger Policy Statement was disposition under section 203, the
1 Pub. L. 109–58, 119 Stat. 594 (2005) (EPAct
to ensure that mergers are consistent Commission must determine that the
2005). transaction would not result in
2 Inquiry Concerning the Commission’s Merger with the public interest and to provide
Policy Under the Federal Power Act: Policy greater certainty and expedition in the inappropriate cross-subsidization of
Statement, Order No. 592, 61 FR 68595 (Dec. 30, Commission’s analysis of merger non-utility affiliates or encumbrance of
1996), FERC Stats. & Regs. ¶ 31,044 (1996) (1996 applications. The 1996 Merger Policy utility assets; 12 and (3) imposes
Merger Policy Statement), reconsideration denied, statutory deadlines for acting on
Order No. 592–A, 62 FR 33341 (June 19, 1997), 79 Statement refined and modified the
FERC ¶ 61,321 (1997). Commission’s merger policy ‘‘in light of
10 Although the Commission applies these factors
3 16 U.S.C. 824b (2000), amended by EPAct 2005,
dramatic and continuing changes in the
Pub. L. No. 109–58, 1289, 119 Stat. 594, 982–83 to all section 203 transactions, not just mergers, the
electric power industry and filing requirements and the level of detail required
(2005). See also Transactions Subject to FPA
section 203, Order No. 669, 71 FR 1348 (Jan. 6, corresponding changes in the regulation may differ. 1996 Merger Policy Statement, FERC
2006), FERC Stats. & Regs. ¶ 31,200 (2005), order on of that industry.’’ 9 States & Regs. ¶ 31,044, at 30,113 n.7. See also 18
reh’g, Order No. 669–A, 71 FR 28422 (May 16, CFR 2.26 (codifying the 1996 Merger Policy
4. In the 1996 Merger Policy Statement).
2006), FERC Stats. & Regs. ¶ 31,214, order on reh’g,
Order No. 669–B, 71 FR 42579 (July 27, 2006), Statement, the Commission set out the 11 Revised Filing Requirements Under Part 33 of
FERC Stats. & Regs. ¶ 31,225 (2006). three factors it generally considers when the Commission’s Regulations, Order No. 642, 65
4 16 U.S.C. 79a et seq. (PUHCA 1935).
analyzing whether a proposed section FR 70984 (Nov. 28, 2000), FERC Stats. & Regs.
5 EPAct 2005, Pub. L. 109–58, 1261, et seq., 119 ¶ 31,111 (2000) (Filing Requirements Rule), order
Stat. 594, 972–78 (PUHCA 2005). See also Repeal on reh’g, Order No. 642–A, 66 FR 16121 (Mar. 23,
6 Blanket Authorization Under FPA Section 203,
of the Public Utility Holding Company Act of 1935 2001), 94 FERC ¶ 61,289 (2001) (codified at 18 CFR
and Enactment of the Public Utility Holding 120 FERC ¶ 61,062 (2007) (issued in Docket No. Part 33).
Company Act of 2005, Order No. 667, 70 FR 75592 RM07–21–000) (Blanket Authorization NOPR). 12 Section 203(a)(4) is not an absolute prohibition
7 Cross-Subsidization Restrictions on Affiliate
(Dec. 20, 2005), FERC Stats. & Regs. ¶ 31,197 (2005), on the creoss-subsidization of a non-utility
Transactions, 120 FERC ¶ 61,061(2007) (issued in
order on reh’g, Order No. 667–A, 71 FR 28446 (May associate company or the pledge or encumbrance of
16, 2006), FERC Stats. & Regs. ¶ 31,213, order on Docket No. RM07–15–000) (Affiliate Transactions utility assets for the benefit of an associate
reh’g, Order No. 667–B, 71 FR 42750 (July 28, NOPR). company. If the Commission determines that the
8 Supra note 2.
2006), FERC Stats. & Regs. ¶ 31,224 (2006), order on cross-subsidization, pledge or encumbrance will be
reh’g, Order No. 667–C, 72 FR 8277 (Feb. 26, 2007), 9 1996 Merger Policy Statement, FERC Stats. & consistent with the public interest, such action may
118 FERC ¶ 61,133 (2007). Regs. ¶ 31,044, at 30,110. be permitted.
Federal Register / Vol. 72, No. 148 / Thursday, August 2, 2007 / Rules and Regulations 42279
mergers and other jurisdictional Post-technical conference comments effective until February 2006. The
transactions. were accepted. Commission thus has had only 18
6. Through the Order No. 669 8. On March 8, 2007, the Commission months’ experience under the new laws.
rulemaking proceeding, the Commission held a second technical conference Therefore, we will continue to monitor
promulgated regulations adopting (March 8 Technical Conference) to the issues that arise under section 203,
certain modifications to 18 CFR 2.26 discuss whether the Commission’s including cross-subsidization issues,
and Part 33 to implement amended section 203 policy should be revised and re-evaluate our regulatory approach
section 203. The Commission also and, in particular, whether the as appropriate. The Commission’s goals
provided blanket authorizations for Commission’s Appendix A merger are to provide sufficient flexibility to
certain transactions subject to section analysis is sufficient to identify market adopt customer protections as needed,
203. These blanket authorizations were power concerns in today’s electric work in a complementary fashion with
crafted to ensure that there is no harm industry market environment. The first the states in protecting customers,
to captive utility customers, but sought panel discussed whether the Appendix appropriately address the need for
to accommodate investments in the A analysis is appropriate to analyze a regulatory certainty with respect to
electric utility industry by facilitating merger’s effect on competition, given jurisdictional transactions, and address
market liquidity. Some commenters in the changes that have occurred in the ways to allow beneficial utility industry
the rulemaking proceeding urged the industry (e.g., the development of investment that does not harm captive
Commission to grant additional blanket Regional Transmission Organizations customers.15
authorizations. Other commenters (RTOs)) and statutory changes (e.g., as a A. The Commission’s Cross-
argued that the Commission should result of the repeal of PUHCA 1935 and Subsidization Concerns and Exhibit M
adopt additional generic rules to guard new authorities given to the Requirements
against inappropriate cross- Commission in EPAct 2005). The
subsidization associated with the second panel assessed the factors the 11. At the December 7 Technical
mergers. Certain commenters argued Commission uses in reviewing mergers Conference, a number of commenters
that the Commission should modify its and the coordination between the asserted that a vast majority of section
competitive analysis for mergers, which Commission and other agencies 203 transactions pose no threat of cross-
has been in place for 10 years. The (including state commissions) with subsidization but nonetheless, the
Commission stated that it would merger review responsibility. Commission’s regulations require
reevaluate these and other issues at a applicants to provide ‘‘an explanation,
II. Discussion with appropriate evidentiary support for
future technical conference on the
9. Based on the Commission’s such explanation * * * of how
Commission’s section 203 regulations as
experiences thus far in implementing applicants are providing assurance
well as certain issues raised in the Order
amended section 203, the input received * * * that the proposed transaction will
No. 667 rulemaking proceeding
through the Order No. 669 rulemaking not result in, at the time of the
implementing PUHCA 2005.
proceeding, and the comments received transaction or in the future, cross-
7. On December 7, 2006, the
in response to the December 7 and subsidization of a non-utility associate
Commission held a technical conference
March 8 Technical Conferences, the company or pledge or encumbrance of
(December 7 Technical Conference) to
Commission finds that additional utility assets for the benefit of an
discuss several of the issues that arose
clarification and guidance regarding our associate company * * *.’’ 16
in the Order No. 667 and Order No. 669
rulemaking proceedings. The December section 203 policy are warranted. The
15 As indicated below, the Commission does not
7 Technical Conference discussed a Commission will provide certain
propose actions on all of the issues raised by
range of topics. The first panel clarifications and guidance concerning: commenters. For example, the Commission is not
discussed whether there are additional (1) The information that must be filed as proposing changes to its regulations that would
part of section 203 applications for require: (1) Codification of specific requirements for
actions, under the FPA or the Natural cash management programs and money pool
Gas Act (NGA), that the Commission transactions that do not raise cross- agreements; (2) codification of additional
should take to supplement the subsidization concerns; (2) the types of information reporting requirements (through
protections against cross-subsidization applicant commitments and ring- section 203 applications or through routine
fencing measures that, if offered, might reporting requirements); or (3) additional, generic
that were implemented in the Order No. actions pursuant to the Commission’s NGA
667 and Order No. 669 rulemaking address cross-subsidization concerns; 14 authority. Based on the types of filings made since
proceedings. The second panel (3) the scope of blanket authorizations Order Nos. 667 and 669 became effective and the
discussed whether, and if so how, the under sections 203(a)(1) and 203(a)(2); comments raised at the technical conferences, we
(4) what constitutes a disposition of do not believe further actions on these particular
Commission should modify its Cash issues are warranted at this time. Moreover, we note
Management Rule 13 in light of PUHCA control of jurisdictional facilities for that certain commenters recommended that the
2005, and whether the Commission purposes of section 203; and (5) the Commission provide a list on its website of all
should codify specific safeguards that Commission’s Appendix A analysis. jurisdictional public utilities (including qualifying
10. We note that amended section 203 facilities and exempt wholesale generators), foreign
must be adopted for cash management utility companies, transmitting utilities, electric
programs and money pool agreements and PUHCA 2005 did not become utilities, electric utility companies, and holding
and transactions. The third panel companies (as those terms are defined under EPAct
14 When ‘‘cross-subsidization’’ occurs, some of 2005 and PUHCA 2005) for use by market
discussed whether modifications to the the costs of dealings between affiliated regulated participants in their regulatory compliance
specific exemptions, waivers and and unregulated companies are borne by the monitoring efforts and as they consider whether to
blanket authorizations set forth in the regulated utility affiliate. The costs might be passed acquire or hold the securities of companies, the
Order No. 667 and Order No. 669 on to captive customers through the rates of the acquisition or holding of which might or might not
regulated affiliate. ‘‘Ring-fencing’’ employs various be subject to FPA section 203 or PUHCA 2005.
rulemaking proceedings are warranted. techniques to separate and protect the financial While the Commission declines to rule on this issue
in the context of a policy statement, it will explore
assets and ratings of the regulated utility from the

13 Regulation of Cash Management Practices, business risks of other members of the holding the feasibility of making some of this information
Order No. 634, 68 FR 40500 (July 8, 2003), FERC company family, including bankruptcy of the publicly available on its website.
Stats. & Regs. ¶ 31,145, revised, Order No. 634–A, parent or its affiliates. These techniques could 16 The explanation, to be provided as Exhibit M
68 FR 61993 (Oct. 31, 2003), FERC Stats. & Regs. preclude some types of transactions that involve to a section 203 application, includes:
¶ 31,152 (2003) (Cash Management Rule). cross-subsidization. Continued
12. Several commenters argued that it customers to shareholders of the non-utility affiliated entities or is a bona
is not clear how to provide the holding company. Further, customers fide, arm’s-length, bargained-for
explanation required under Exhibit M may be harmed if the franchised public exchange, then the transaction is not
for transactions in which cross- utility purchases non-power goods and likely to result in inappropriate cross-
subsidization is not possible, is services from an affiliate at above- subsidization and the detailed
precluded by existing safeguards or is market prices or sells non-power goods explanation and evidentiary support
reduced to a very low possibility. Thus, and services to an affiliate at less than required by Exhibit M may not be
they urged the Commission to establish market value and seeks to recover the warranted.
criteria to identify ‘‘safe harbors’’ or overcharges or the undercharges 16. Accordingly, for purposes of
classes of transactions that clearly do through rates for service to captive compliance with Exhibit M, the
not raise cross-subsidization concerns. customers.18 Concerns may also arise Commission will recognize three classes
They contended that such an approach with respect to intra-corporate financing of transactions that are unlikely to raise
will enhance regulatory certainty by transactions that may encumber the cross-subsidization concerns
letting parties know up front that with franchised public utility assets in favor described in the Order No. 669
these types of transactions, there is no of a market-regulated or non-utility rulemaking proceeding. These, in effect,
risk of additional restrictions being affiliate. The Commission’s regulatory are ‘‘safe harbors’’ for meeting the
imposed by the Commission. concern with this particular form of section 203 cross-subsidization
13. The Commission’s focus generally cross-subsidization is with the potential demonstration, absent concerns
has been on preventing a transfer of adverse impact of the internal finance identified by the Commission or
benefits from a public utility’s captive transaction on the rates of a franchised evidence from interveners that there is
customers to shareholders of the public public utility with captive customers. a cross-subsidy problem based on the
utility’s holding company due to an particular circumstances presented.
intra-system transaction that involves 1. ‘‘Safe Harbors’’ for Meeting Exhibit M 17. The first class of transactions
electric power or energy, generation Requirements for Certain Transactions includes those transactions where the
facilities, or non-power goods and 14. Since the February 2006 effective applicant shows that a franchised public
services.17 Concerns arise in a number date of the FPA section 203 utility with captive customers is not
of circumstances, including where a amendments, the Commission has involved. If no captive customers are
market-regulated affiliate (e.g., a power gained sufficient experience in involved, then there is no potential for
seller with market-based rates) or a non- implementing the cross-subsidization harm to customers. Therefore,
utility affiliate provides power or goods provision of FPA section 203(a)(4) to compliance with Exhibit M could be a
and services to a franchised public provide policy guidance on the cross- showing that no franchised public
utility with captive customers, as well subsidization demonstration required by utility with captive customers 19 is
as the circumstance in which the Exhibit M. As described above, there are involved in the transaction.
franchised public utility with captive many instances where cross- 18. The second class of transactions
customers provides power or non-power subsidization can occur, but our focus is includes those transactions that are
goods and services to the market- on the specific requirements under subject to review by a state commission.
regulated or non-utility affiliate. For section 203(a)(4) and the Order No. 669 The Commission, in the context of
instance, a franchised public utility rulemaking proceeding—inappropriate specific mergers or other corporate
with captive customers may purchase cross-subsidization of non-utility or transactions, intends to defer to state
power from its marketing affiliate at a market-regulated affiliates or the pledge commissions where the state adopts or
price above market or sell power to its or encumbrance of utility assets for the has in place ring-fencing measures to
marketing affiliate at below-market benefit of an associate company. The protect customers against inappropriate
prices, thus transferring benefits from concern arises in a corporate structure cross-subsidization or the encumbrance
that has at least one franchised public of utility assets for the benefit of the
‘‘Disclosure of existing pledges and/or utility with captive customers and one ‘‘unregulated’’ affiliates. Therefore,
encumbrances of utility assets; and a detailed
or more non-utility affiliates or market- compliance with Exhibit M could be
showing that the transaction will not result in: any satisfied with a showing that the
transfer of facilities between a traditional public regulated utility affiliates (i.e., utilities
utility associate company that has captive regulated on a market rather than a cost proposed transaction complies with
customers or that owns or provides transmission
basis). These types of relationships specific state regulatory protections
service over jurisdictional transmission facilities, against inappropriate cross-
and an associate company; any new issuance of provide opportunities for cross-
securities by a traditional public utility associate subsidization in routine transactions subsidization by captive customers. If a
company that has captive customers or that owns between affiliates in addition to more state does not have the authority to
or provides transmission service over jurisdictional impose cross-subsidization protections,
transmission facilities, for the benefit of an
significant transactions such as transfers
however, the transaction would not
associate company; any new pledge or of utility assets, encumbrance of utility
qualify for this safe harbor.
encumbrance of assets of a traditional public utility assets, new affiliate contracts, and 19. The third class of transactions are
associate company that has captive customers or issuance of securities by affiliates (that
that owns or provides transmission service over those involving only non-affiliates.
jurisdictional transmission facilities, for the benefit usually receive more public scrutiny or Where a franchised public utility
of an associate company; or any new affiliate regulatory attention). transacts only with nonaffiliated
contract between a non-utility associate company 15. Where these affiliate relationships
and a traditional public utility associate company entities, the potential for inappropriate
do not exist, that is, where a transaction
that has captive customers or that owns or provides cross-subsidization of a non-utility
involves only market-regulated and/or
transmission service over jurisdictional associate company or the pledge or
transmission facilities, other than non-power goods encumbrance of utility assets for the
and services agreements subject to review under 18 Transactions Subject to FPA Section 203, 70 FR
sections 205 and 206 of the Federal Power Act; or 58636 (Oct. 7, 2005) FERC Stats. & Regs. ¶ 32,589 benefit of an associate company
if no such assurance can be provided, an
at P 47 (2005. In the concurrent Affiliate

explanation of how such cross-subsidization, Transactions NOPR, supra note 7, the Commission 19 The Commission has defined ‘‘captive
pledge, or encumbrance will be consistent with the is proposing to extend the affiliate abuse customers,’’ for purposes of FPA section 203, to
public interest.’’ 18 CFR 33.2(j)(1)–(2). restrictions to apply to all franchised public utilities mean ‘‘any wholesale or retaile electric energy
17 Order No. 669, FERC Stats. & Regs. ¶ 31,200 at with captive customers and their market-regulated customers served under cost-based regulation.’’ 18
P 147. power sales affiliates and non-utility affiliates. CFR 33.1(b)(5).
generally is not present. Therefore, and also provide an exhaustive menu of companies or the inappropriate pledge
compliance with Exhibit M could be additional cross-subsidization or encumbrance of utility assets for the
satisfied with a showing that a public safeguards, including ring-fencing benefit of an associate company, either
utility transacts only with nonaffiliated measures, that applicants might propose through meeting one of the safe harbor
entities. This category includes a or that the Commission might impose in demonstrations, proposing its own ring-
transfer of assets between a public appropriate cases. They proposed that fencing or other protections to prevent
utility and non-affiliates, but does not the Commission codify its code of cross-subsidization, or demonstrating
include mergers with, or acquisitions of, conduct requirements in the regulations that there are no potential cross-subsidy
public utilities. and that these restrictions be made issues associated with the proposed
20. After review of a section 203 applicable to all traditional public transaction.
application relying on any of these ‘‘safe utilities and their unregulated affiliates. 24. With respect to guidance to
harbors,’’ if the Commission finds that 23. The Commission agrees that it is applicants that do not make the ‘‘safe
the applicant has failed to make a appropriate to codify in our regulations harbor’’ demonstration or do not
sufficient showing that it meets the code of conduct affiliate restrictions to demonstrate that cross-subsidy issues
criteria described above, then the prevent cross-subsidization involving are not present, one way to make the
application will be deemed to be power and non-power goods and demonstration required by Exhibit M
deficient and a new Exhibit M will be services transactions and to make those would be to propose ring-fencing
required. prophylactic restrictions applicable to measures. For example, a ring-fencing
all traditional (franchised) public structure related to internal corporate
2. Other Means of Addressing Cross- financings, i.e., money pool or cash
Subsidization Concerns utilities (not just public utilities seeking
section 203 approval) and their management transactions, could include
21. Intra-corporate financing transactions with power sellers as well some or all of the following elements
transactions may raise cross- as non-utility affiliates. Accordingly, depending on the circumstances: (1)
subsidization concerns if the assets of a contemporaneous with this Policy The holding company participates in
franchised public utility with captive Statement, we are instituting a Notice of the money pool as a lender only and it
customers are used to finance its Proposed Rulemaking to do this. does not borrow from the subsidiaries
market-regulated utility affiliates or However, with respect to additional with captive customers; (2) where the
non-utility affiliates or their activities. restrictions that may be appropriate for holding company system includes more
In the December 7 Technical section 203 applicants, such as ring- than one public utility, the money pool
Conference, several commenters noted fencing restrictions, the Commission for subsidiaries with captive customers
that their states had implemented ring- does not believe it is necessary or is separate from the money pool for all
fencing measures to mitigate potential appropriate to mandate generic one- other subsidiaries; (3) all money pool
risks of cross-subsidization but that size-fits-all protections for all section transactions are short-term (one year or
many states had not. These commenters 203 applicants. Rather, the Commission less), and payable on demand to the
suggested that the Commission will examine the facts and public utility; (4) the interest rate
implement safeguards to mitigate risks circumstances of each transaction and formula is set according to a known
in the absence of state regulation determine on a case-by-case basis index and recognizes that internal and
(although not necessarily on a generic whether additional protections against external funds may be loaned into the
basis, relying on the states where the inappropriate cross-subsidization or money pool; (5) loan transactions are
state has already taken such measures). encumbrances of utility assets are made pro rata from those offering funds
Most commenters urged the necessary. As noted above, part of our on the date of the transactions; (6) the
Commission to continue to review approach will involve review of formula for distributing interest income
whether potential mergers required whether state commissions have realized from the money pool to money
additional protections on a case-by-case authority to impose cross-subsidy pool members is publicly disclosed; and
basis. Representatives of the state protections or have in place such (7) the money pool administrator is
commissions, including the Oregon protections. The Commission, as a required to maintain records of daily
Public Utility Commission, Wisconsin general matter, intends to defer to state- money pool transactions for
Public Service Commission and adopted protections unless they can be examination by the Commission by
Missouri Public Service Commission, shown to be inadequate to protect transaction date, lender, borrower,
recommended that the Commission only wholesale customers. This deference is amount, and interest rate(s).21 We
act where there is a demonstrable gap in appropriate because retail customers clarify that the forms of ring-fencing
state authority. None supported typically represent the vast majority of protections listed herein are simply
adoption of federal, mandatory ring- load served by a franchised public examples of protections that the
fencing conditions. Some commenters utility, and ring-fencing measures Commission would consider in
did not oppose the establishment of typically affect the entire corporation, evaluating proposed ring-fencing
guidelines on the kinds of protections thereby protecting both retail and measures. Appropriate ring-fencing
that might be appropriate in different wholesale customers. If it can be shown, measures will depend on the facts
cases.20 however, that these measures are presented and the specifics of an
22. American Public Power inadequate to protect wholesale applicant’s corporate structure and must
Association and the National Rural customers in a given case, the be evaluated on a case-by-case basis.
Electric Cooperative Association argued Commission may adopt supplemental Further, as noted earlier, to the extent a
that the Commission adopt regulations protections as appropriate. Finally, we state commission imposes specific ring-
with minimum cross-subsidization emphasize that, consistent with section fencing measures, the Commission will
safeguards that would apply in all cases, 203 and the Commission’s regulations, defer to those measures absent evidence
20 See, e.g., Comments of Clifford M. Naeve,

all section 203 applicants must 21 These ring-fencing measures are among those
December 7 Technical Conference, Tr. 91–92;

demonstrate that a proposed transaction requirements typically approved by the Securities
Comments of Joseph G. Sauvage, December 7 will not result in inappropriate cross- and Exchange Commission (SEC) and/or adopted by
Technical Conference, Tr. 56–58. subsidization of non-utility associate state commissions.
that additional measures are needed to blanket authorizations under Order No. Commission clarify that transactions
protect wholesale customers. 669 allow a holding company to acquire that do not affect control do not, in fact,
25. The Commission also notes that if the voting securities of a transmitting require approval under section
it approves a transaction under section utility, an electric utility company, or a 203(a)(1). Alternatively, FIEG argued
203 (with or without ring-fencing holding company in a holding company that there are several types of
measures), the Commission retains system that includes a transmitting transactions under which no change of
authority under section 203(b) to later utility or an electric utility company, if, control is involved and, therefore, the
impose additional cross-subsidy after the acquisition, the holding Commission should provide blanket
protections or modify any previously company will own less than 10 percent authorizations under both section
approved measures. Further, of the outstanding voting securities. 203(a)(1) and section 203(a)(2). FIEG
irrespective of any link to the section What most commenters seek is a asserted that such transactions include:
203 transaction, the Commission retains parallel blanket authorization under (1) Acquisitions of voting securities that
ongoing authority under section 206 of section 203(a)(1) for the public utilities would give the acquiring entity less
the FPA 22 to modify rates, contracts and in such transactions to ‘‘dispose’’ of than 10 percent ownership of
practices that may result in their facilities to the holding company, outstanding voting securities; (2)
inappropriate cross-subsidization or i.e., a blanket authorization for acquisitions of up to 20 percent of the
encumbrances of utility assets (and, if transactions that (1) involve or permit voting interests in a public utility where
appropriate, to require new practices). transfers (dispositions) of up to 10 the acquirer is eligible to file with the
3. Future Case-Specific Informational percent of a public utility’s voting stock, SEC a Schedule 13G demonstrating no
Filings or (2) involve a transfer of up to 10 intent to exercise control over the entity
percent of the voting stock of a holding whose securities are being acquired; (3)
26. Given that the Commission often company that directly or indirectly acquisitions involving securities held
issues its order in a section 203 owns or controls a public utility. for lending, hedging, underwriting and/
proceeding before the state proceedings Alternatively, they seek clarification or fiduciary purposes. FIEG also argued
are completed, the Commission may that certain transactions are not that a blanket authorization should be
grant authorization under section 203 jurisdictional. granted for transactions in which a
before the relevant state commission 28. Several commenters supported public utility or a holding company is
issues an order specifying any state- modification of the rules to grant such acquiring or assigning a jurisdictional
required cross-subsidy or ring fencing a parallel blanket authorization under contract where the acquirer does not
protections. In such circumstances, as 203(a)(1). In addition, Mirant have captive customers and the contract
appropriate, the Commission in the Corporation (Mirant) argued that section does not convey control over the
context of individual section 203 203(a)(1) should not apply at all to stock operation of a generation or
authorizations will require applicants to transactions in the secondary market transmission facility.
file with the Commission a copy of any involving the corporate parent. Mirant 31. In support of its requests for
subsequent state orders. Such copy maintained that if the Commission clarification and expanded blanket
would be filed in the Commission’s continues to apply section 203(a)(1) to authorizations, FIEG states that shares
section 203 proceeding docket as an equity transfers of upstream ownership and other interests in public utilities are
informational filing, and the applicant interests in public utilities that result in bought, sold and traded on a regular
would also provide copies to the either a direct or indirect change in basis and that an active market for a
intervenors in the Commission’s section control over the underlying public public utility’s shares is important to its
203 proceedings. utility, there would be a substantial and ability to raise capital. FIEG explains
unnecessary overlap between sections that if a passive or non-controlling
B. Blanket Authorizations Under
203(a)(1) and 203(a)(2). The Goldman investor must seek prior Commission
Sections 203(a)(1) and 203(a)(2) and
Sachs Group, Inc. (Goldman) added that approval for transactions, the trading
Clarifications Regarding Jurisdictional
financial investors need certainty on process is slowed, resulting in a less
Transactions
whether particular transactions in the efficient market for the company’s
27. Through the Order No. 669 secondary market would require prior shares. According to FIEG, such
rulemaking proceeding, the Commission Commission approval under section inefficiencies chill participation in the
granted certain blanket authorizations 203(a)(1). Goldman also argued for a industry and reduce needed market
on a generic basis under section 203.23 blanket authorization under section liquidity.
Participants at the December 7 203(a)(2) for the acquisition of voting 32. Several commenters also urged the
Technical Conference addressed securities by firms acting in a fiduciary Commission to provide greater clarity
whether additional blanket capacity. on what constitutes a passive
authorizations were warranted. 29. Edison Electric Institute (EEI) investment for which no Commission
Specifically, commenters discussed argued for a blanket authorization for authorization is required under section
under what circumstances the internal corporate reorganizations under 203(a)(1).
Commission should grant a blanket both sections 203(a)(1) and 203(a)(2) for 33. The Commission agrees that
authorization under section 203(a)(1) transfer of assets from one non- greater industry investment and market
(which applies to public utilities’ traditional utility subsidiary, such as an liquidity are important goals. However,
dispositions of jurisdictional facilities) exempt wholesale generator, to another blanket authorizations under section
to parallel the Order No. 669 blanket non-traditional utility subsidiary. 203 cannot be granted lightly,
authorizations under section 203(a)(2) 30. The Financial Institutions Energy particularly generic authorizations.
(which, among other things, applies to Group (FIEG) 24 requested that the Because it is an ex ante determination
holding companies’ acquisitions of as to the appropriateness of a category
24 Members of FIEG include: Bank of America,

securities of public utilities with
N.A, Barclays Bank PLC, Bear Energy LP, Citigroup Commodity Services Inc. (a subsidiary of Lehman
jurisdictional facilities). The section 203 Energy Inc., Credit Suisse Energy LLC (a subsidiary Brothers Holding Inc.), Merrill Lynch Commodities,
of Credit Suisse), Deutche Bank AG, J. Aron & Inc., Morgan Stanley Capital Group Inc., Société
22 16 U.S.C. 824e. Company (a subsidiary of The Goldman Sachs Générale, and UBS Energy LLC (a subsidiary of UBS
23 18 CFR 33.1(c) Group), JPMorgan Chase & Co., Lehman Brothers AG).
of transactions under section 203 and a At the same time, this approach will 37. In addition, we clarify that
counterparty is not yet identified, a allow the Commission to assess specific transactions that do not transfer control
blanket authorization can be granted circumstances, to place time limits on of a public utility do not fall within the
only when the Commission can be blanket authorizations if appropriate ‘‘or otherwise dispose’’ language of
assured that the statutory standards will (subject to possible renewal), to monitor section 203(a)(1)(A) and thus do not
be met, including ensuring that the industry activity, and to adapt the use require approval under section
interests of captive customers are of blanket authorizations over time as 203(a)(1)(A) (assuming there is no sale
safeguarded and that public utility we gain further experience with or lease of the facilities). As indicated in
assets are protected under all financial institution investments in our discussion of what constitutes a
circumstances. It is under this paradigm particular. Further, we do not rule out disposition of control for purposes of
that we provide the following guidance the possibility that groups of similarly the Commission’s section 203
with respect to the section 203 blanket situated holding companies, such as analysis,28 while the Commission
authorizations. financial institutions, can make joint cannot make an ex ante determination
34. First, we will grant in part and filings seeking common blanket regarding what is control for purposes of
deny in part requests for blanket authorizations under section 203(a)(1) the Commission’s section 203 analysis
authorizations under section 203(a)(1) to or section 203(a)(2); however, they absent facts of a specific case, the
parallel those previously granted under would need to clearly demonstrate on Commission is setting forth herein
section 203(a)(2). The Commission the record that there would be no certain guidelines regarding what has
recognizes that, in some circumstances, adverse impact on captive customers or been deemed to be (or not to be) control.
the lack of a blanket authorization under the public interest if the authorizations This clarification addresses many of the
section 203(a)(1) can lessen the practical were granted. concerns raised by commenters
effectiveness of the blanket 36. In response to requests that the regarding acquisitions involving
authorizations previously granted under Commission clarify that secondary securities held for lending, hedging,
section 203(a)(2). Accordingly, in a market transactions involving public underwriting and/or fiduciary purposes.
Notice of Proposed Rulemaking issued utilities do not require approval under If such transactions do not result in a
contemporaneous with this Policy section 203(a)(1)(A) (which provides transfer of control and there is no sale
Statement, the Commission is proposing that a public utility may not sell, lease or lease of the facilities taking place,
a limited blanket authorization under ‘‘or otherwise dispose’’ of the whole of then section 203(a)(1)(A) is not
section 203(a)(1) under which a public its jurisdictional facilities or any part triggered. This should assist applicants
utility would be ‘‘pre-authorized’’ to hereof without prior Commission in determining the need for prior
dispose of less than 10 percent of its approval), we so clarify. Secondary authorization under section 203.
securities to a public utility holding market transactions, for purposes of this 38. With respect to the request for a
company but only if, after the discussion, are purchases or sales of the generic blanket authorization for
disposition, the holding company and securities of a public utility or its internal corporate reorganizations under
any associate or affiliated company in upstream holding company by a third- both sections 203(a)(1) and 203(a)(2) for
aggregate will own less than 10 percent party investor. Thus, such transactions the transfer of assets from one non-
of that public utility.25 The Commission do not include the securities’ initial traditional utility subsidiary 29 to
believes that this narrow blanket issuance or reacquisition by the issuer. another non-traditional utility
authorization will provide appropriate Thousands of shares of the stock of a subsidiary, the Commission cannot be
relief to investors and at the same time public utility or public utility holding certain of the impact of such
ensure that utility assets and captive company may be traded on a daily basis transactions on utility affiliates on a
customers are protected. by non-public utility third parties, generic basis and, therefore, will not
35. The Commission will continue to particularly if the stock is widely held grant a blanket authorization at this
consider broader requests for blanket and publicly traded. As noted by time. The Commission will consider
authorizations under section 203(a)(1) Mirant, EEI and members of FIEG in case-specific blanket authorizations
on a case-specific basis,26 taking into their comments, neither a public utility (with appropriate reporting
account all other authorizations that holding company nor a public utility requirements) on a case-by-case basis.
have been granted and whether those 39. The Commission also denies the
subsidiary of the holding company are
authorizations, in conjunction with a request for a generic blanket
themselves parties to these transactions
blanket authorization under section authorization under section 203(a)(2) for
and they cannot know in advance what
203(a)(1), would raise concerns. While non-bank fiduciaries subject to the
trading will occur or whether direct or
the Commission, as discussed above, jurisdiction of the SEC. The
indirect ‘‘control’’ over the public utility Commission finds that we need further
has determined that additional generic is being acquired. It would be virtually
blanket authorizations for public experience in this area before granting a
impossible in such circumstances for blanket authorization on a generic basis.
utilities’ dispositions of jurisdictional the public utility or holding company to
assets are not warranted at this time However, the Commission is willing to
know what is occurring before the fact consider such requests on a holding
(other than the blanket authorizations and we do not interpret section company-specific basis or from
discussed in the accompanying NOPR), 203(a)(1)(A) to be triggered for these similarly situated holding companies,
we expect that in many circumstances secondary trades. Accordingly, neither such as similarly situated financial
individual blanket authorizations can be public utilities nor public utility institutions. Any such applications
granted. Such an individual, situation- holding companies have an obligation to would need to demonstrate in sufficient
specific, ex ante blanket authorization seek approval of a ‘‘disposition’’ of
will provide some of the certainty that public utility jurisdictional facilities for another public utility, it may also have to file under
is sought by the industry and investors. such trades.27 section 203(a)(1)(C) (no public utility may purchase
securities of another public utility if over $10

25 Blanket Authorization NOPR, supra note 6. 27 If the acquirer of securities in the secondary million in value).
26 Order 28 See infra section II.C.
No. 669–A, FERC Stats. & Regs. ¶ 31,214 market is a public utility holding company,
at P 103; Order No. 669–B, FERC Stats. & Regs. however, it may have an obligation to file for 29 For example, power marketers, exempt
¶ 31,225 at P 43. approval under section 203(a)(2). If the acquirer is wholesale generators, or qualifying facilities.
detail that applicants would not be able C. Disposition of ‘‘Control’’ of section 203(a)(1) to include transfers of
to control public utilities and that there Jurisdictional Facilities ‘‘control’’ of jurisdictional facilities.
would be no adverse impact on captive 42. Several commenters have asked Additionally, prior Commission
customers or the public interest if the the Commission to provide guidance on approval is required for any public
authorizations were granted. As what constitutes a disposition of utility that seeks to directly or indirectly
discussed above with respect to section ‘‘control’’ of jurisdictional facilities merge or consolidate the whole of its
203(a)(1) authorizations, this type of under section 203. Most recently, this jurisdictional facilities, or any part
approach would allow the Commission request is being pressed by the thereof, with the facilities of another
to assess specific circumstances, to investment community, which seeks person, ‘‘by any means whatsoever.’’ 32
place time limits on blanket further clarification regarding the scope As interpreted by the Commission, the
authorizations if appropriate (subject to of the Commission’s regulatory requirement to obtain the Commission’s
possible renewal), to monitor industry authority, and greater regulatory approval under the ‘‘merge or
activity, and to adapt the use of blanket certainty as to when section 203 review consolidate’’ clause depends on whether
authorizations over time as we gain the public utility’s facilities are subject
is required.
further experience. 43. We will provide guidance here, to the jurisdiction of the Commission
40. Certain participants to the but emphasize that the determination of and whether the transaction directly or
technical conferences argue that a whether there is a disposition of control indirectly would result in a change of
blanket authorization under section must be based on all circumstances. In ‘‘control’’ of the facilities.33
203(a)(1) should be granted for 46. In Enova Corporation, the
other words, the decision must be made
transactions in which a public utility or Commission explained that the purpose
on a fact-specific basis. As discussed
a holding company is acquiring or of section 203 is to provide a
further below, while our case law under
disposing of a jurisdictional contract mechanism for maintaining oversight of
section 201 provides guidance on the the facilities of public utilities and to
where the acquirer does not have factors that may result in control, no
captive customers and the contract does prevent transfers of control over those
single factor or factors necessarily facilities that would harm consumers or
not convey control over the operation of results in control. The electric industry that would inhibit the Commission’s
a generation or transmission facility. remains a dynamic, developing ability to secure the maintenance of
These commenters argue that because industry, and no bright-line standard adequate service and the coordination
acquisition of these contracts cannot will encompass all relevant factors and in the public interest of jurisdictional
create competitive or rate concerns, the possibilities that may occur now or in facilities.34 The Commission
Commission should grant blanket the future.31 determined that it cannot definitively
authorization under section 203(a)(1) for 44. We note that much of the identify every combination of entities or
such transactions. Because the specific Commission’s precedent in this area disposition of assets that may trigger
request for blanket authorization may was developed based on concerns that jurisdiction under section 203, since it
present concerns where the transferor there could be a jurisdictional void if cannot anticipate every type of
has captive customers, we seek the Commission did not interpret restructuring that might occur. The
comment in the Blanket Authorization broadly what constitutes a disposition Commission stressed that its concern
NOPR on whether a generic blanket of ‘‘control’’ of public utility facilities was with changes in control, including
authorization under section 203(a)(1) is under FPA section 203. The direct or indirect mergers that affect
warranted for the acquisition or Commission was particularly concerned jurisdictional facilities. It said that it
disposition of a jurisdictional contract about the creation of holding companies must be flexible in responding to
where neither the acquirer nor and holding company acquisitions that industry restructuring if it is to
transferor has captive customers and the could result in an indirect change of discharge its statutory responsibility ‘‘to
contract does not convey control over control of the jurisdictional facilities of secure the maintenance of adequate
the operation of a generation or public utilities, without Commission service and the coordination in the
transmission facility. review. In EPAct 2005, however, public interest of facilities subject to the
41. We also decline to grant a generic Congress has filled any jurisdictional jurisdiction of the Commission.’’ 35
blanket authorization under sections void involving public utility holding 47. Noting in Enova that the FPA did
203(a)(1) and 203(a)(2) for acquisitions companies by amending section 203 to not provide definitions for the terms
of up to 20 percent of the voting specifically give the Commission ‘‘dispose’’ or ‘‘control,’’ the Commission
interests in a public utility where the authority over certain holding company stated that those terms should not be
acquirer is eligible to file with the SEC acquisitions and mergers involving FPA read narrowly because to do so would
a Schedule 13G, which demonstrates no public utilities. Thus, the Commission’s result in a jurisdictional void in which
intent to exercise control over the entity pre-EPAct 2005 precedent should be certain types of corporate transactions
whose securities are being acquired. read with this context in mind. could escape Commission oversight.
While the Commission may consider 1. Precedent Discussing Dispositions of While section 203 applies to changes or
eligibility to file a Schedule 13G with Control transfers in the proprietary interests of
the SEC as part of an indication that an
entity will not be able to assert control 45. Section 203 requires prior 32 While the section 203(a)(1) requirements for
over a public utility, the Commission Commission approval if a public utility obtaining Commission authorization do not use the
seeks to sell, lease, or otherwise dispose word ‘‘control’’ in the statutory text, section
will not accept Schedule 13G eligibility 203(a)(4) provides that the Commission must
as a definitive statement regarding of jurisdictional facilities. As previously approve a proposed ‘‘disposition, consolidation,
control. The Commission will consider noted, the Commission has interpreted acquisition, or change in control’’ (emphasis added)
Schedule 13G eligibility as one factor in the ‘‘or otherwise dispose’’ language of if the statutory criteria are met.
33 PDI Stoneman, Inc., 104 FERC ¶ 61,270, at P 13
the analysis of whether an entity can
31 Market-Based Rates for Wholesale Sales of (2003) (PDI Stoneman).

assert control over a public utility.30 34 Enova Corporation, 79 FERC ¶ 61,107, at
Electric Energy, Capacity and Ancillary Services by
Public Utilities, Order No. 697, 72 FR 39903 (July 61,489 (1997) (Enova) (citing pre-EPAct 2005
30 See, e.g., Capital Research and Management 20, 2007), FERC Stats. & Regs. ¶ 31,252, at P 174 section 203(b)).
Company, 116 FERC ¶ 61,267 (2006). (2007) (Market-Based Rate Final Rule). 35 Id. at 61,496.
a public utility,36 not all transactions refers ‘‘to the person who has control on those cases, in Beck, the Commission
under section 203 involve a change in and decision-making authority found that a manager was a controlling
control of a public utility. If no change concerning the operation of entity where he: (1) Effectively governed
in control results from the transaction, facilities.’’ 39 the physical operation of the
it is not likely to adversely affect 50. In a case in which the jurisdictional facility; and (2) effectively
competition, rates or regulation, or Commission disclaimed jurisdiction served as the decision-maker in the
result in cross-subsidization. under section 201(e) over financial sales of wholesale power. While the
48. Our guidance concerning what institutions that took title to facilities as application in that case described a
constitutes a disposition of control of part of a leveraged lease transaction, the series of companies, at least five
jurisdictional facilities for purposes of Commission based its decision that the contracts (all of which either directly
section 203 requires a discussion of lessor/owner was not a public utility affected or were negotiated by the
what constitutes control of a public under section 201 on the following manager), and a trustee in addition to
utility since a public utility is a person factors (which it found in a previous but the manager, the Commission
that owns or operates jurisdictional analogous situation): (1) The financial concluded that the manager was the
facilities. In Enova, the Commission institutions that held legal title were not controlling entity because he had the
cited the definition of control that has operating the facilities; (2) none of the substantive decision-making authority
been in its accounting regulations since parties taking title to the facilities were regarding the jurisdictional assets, the
1937. Under that definition, control in the business of producing or selling market-based rate tariff and a full
means: electric power; and (3) all had a requirements purchase agreement. The
the possession, directly or indirectly, of the principal business other than that of a Commission made this finding even
power to direct or cause the direction of public utility.40 As part of its finding though some of the manager’s actions
management and policies of a company, that the lessor/owner did not operate were subject to the approval of the
whether such power is exercised through one the facility, the Commission interpreted trustee in certain circumstances, e.g., if
or more intermediary companies, or alone, or the word ‘‘operates’’ as referring to the
in conjunction with, or pursuant to an
the transaction exceeded $1 million in
person who has control and decision- value.
agreement, and whether such power is making authority concerning the
established through a majority or minority 53. More recently, in the Market-
ownership or voting of securities, common operation of the facility, i.e., not a Based Rate Final Rule, in providing
directors, officers, or stockholders, voting person who merely performs specific guidance on what contractual
trusts, holding trusts, associated companies, services that are ordered and directed by arrangements convey control over a
contract or any other direct or indirect another party. public utility, we explained that we will
means.37 51. We note that ‘‘control’’ has been consider the totality of circumstances
49. The Commission has also found even where that control is not and attach the presumption of control
discussed certain elements of control in absolute or unfettered. In a case when an entity can affect the ability of
cases concerning whether an entity is a involving a complex holding company capacity to reach the market. We further
public utility under section 201.38 In corporate structure, the Commission explained that our guiding principle is
those cases, the Commission linked deemed an investment adviser that an entity controls the facilities of
‘‘decision-making’’ and ‘‘dominion and subsidiary to be a public utility because another when it controls the decision-
control’’ in determining whether an of its participation in wholesale making over sales of electric energy,
entity is a ‘‘public utility.’’ The transactions. The Commission found including discretion as to how and
Commission also noted that the that the investment adviser had control when power generated by these
reference to ‘‘operates [jurisdictional] over the wholesale contracts to be
facilities will be sold.43
facilities’’ in the definition of public executed under the power marketer’s 54. Investments in public utilities that
utility in section 201(e) of the FPA market-based rate schedule because the do not convey control may in some
combination of the following three cases be considered to be passive
36 See Atlantic City Electric Company v. FERC, factors translated into control: (1) The investments not subject to section
295 F.3d 1, 12 (D.C. Cir. 2002). sole discretion to enter into contracts; 203(a)(1)(A) (unless there is a sale or
37 Enova, 79 FERC at 61,492 (citing 18 CFR Part (2) the exclusive ownership of the lease of the facilities). The Commission
101, Definitions 5.B). This definition is identical to intellectual property on which contracts
that found in the current regulations. In addition, has found an investment to be passive
will be based; and (3) the intention that
for purposes of its Standards of Conduct for if, among other things, (1) the acquired
Transmission Providers, the Commission states that the investment adviser will recommend
interest does not give the acquiring
‘‘control’’ ‘‘includes, but is not limited to, the the contracts into which the power
entity authority to manage, direct or
possession, directly or indirectly and whether marketer subsidiary would enter.41
acting alone or in conjunction with others, of the 52. The Commission cited its control the day-to-day wholesale power
authority to direct or cause the direction of the
decisions in Bechtel and Shaw as sales activities, or the transmission in
management or policies of a company.’’ 18 CFR interstate commerce activities, of the
358.3(c). providing guidance on whether a
38 Section 201(b)(1) describes the activities that nominal manager of a generating jurisdictional entity;44 and (2) the
are subject to the jurisdiction of the Commission: company actually exercised sufficient acquired interest gives the acquiring
‘‘* * * the transmission of electric energy in control to be deemed the operator and, entity only limited rights (e.g., veto and/
interstate commerce and * * * the sale of electric
hence, a public utility.42 Based in part or consent rights necessary to protect its
energy at wholesale in interstate commerce * * *’’ economic investment interests, where
The section further describes the facilities that are
jurisdictional: ‘‘The Commission shall have 39 Enova, 79 FERC at 61,492 (citing Bechtel Power those rights will not affect the ability of
jurisdiction over all facilities for such transmission Corp., 60 FERC ¶ 61,156 (1992) (Bechtel Power)). the jurisdictional public utility to
or sale of electric energy, * * *’’ with certain 40 Bechtel Power, 60 FERC at 61,572 (citing
conduct jurisdictional activities);45 and
exceptions not relevant here. In section 201(e), the Pacific Power & Light Co., 3 FERC ¶ 61,119 (1978); (3) the acquiring entity has a principal
term ‘‘public utility’’ is defined as ‘‘any person who Public Service Company of New Mexico, 29 FERC
¶ 61,387 (1984); United Illuminating Company, 29
owns or operates facilities subject to the jurisdiction

43 Market-Based Rate Final Rule, FERC Stats. &
of the Commission under this Part (other than FERC ¶ 61,270 (1984)).
facilities subject to such jurisdiction solely by 41 D.E. Shaw Plasma Power, L.L.C., 102 FERC Regs. ¶ 31,252 at P 176.
¶ 61,265, at P 33 (2003) (Shaw). 44 See Milford Power Company, LLC, 118 FERC
reason of [certain specified FPA sections]).’’ 16
U.S.C. 824, amended by EPAct 2005, Pub. L. 109– 42 R.W. Beck Plant Management, Ltd., 109 FERC ¶ 61,093, at P 35 n.21 (2007).
58, 1295. ¶ 61,315 (2004) (Beck). 45 See Shaw, 102 FERC ¶ 61,265 at P 15.
business other than that of producing, of such public utility; and (2) the facts Further, the Commission has employed
selling, or transmitting electric power.46 and circumstances do not indicate that a rebuttable presumption in the context
55. We emphasize that the such companies would be able to of its Standards of Conduct for
circumstances that convey control in directly or indirectly exercise a Transmission Providers that ownership
section 203 analysis vary depending on controlling influence over the of 10 percent or more of voting interests
a variety of factors, including the management or policies of the public creates a rebuttable presumption of
transaction structure, the nature of utility. The Commission will apply this control.49
voting rights and/or contractual rights policy on a case-by-case basis. Further,
and obligations conveyed in the D. The Commission’s Appendix A
if holding companies or other acquirers
transaction. For example, in PDI Analysis
believe that facts and circumstances
Stoneman, the Commission considered prevent them from exercising control 1. Appendix A Policy and Case History
the acquisition of facilities through even if they own 10 percent or more of 59. The 1996 Merger Policy Statement
three transactions, over approximately a public utility, they may seek to make uses an analytical screen (Appendix A
seven years, in which the applicant’s such a demonstration to the analysis) to allow early identification of
resulting ownership shares at issue at Commission. transactions that clearly do not raise
the end of each of the three transactions 58. This 10 percent threshold is competitive concerns.50 As discussed
went from one-third to two-thirds to 100 consistent with the definition of below, the Commission does not believe
percent of the voting stock. The ‘‘holding company’’ under section modifications to its Appendix A
applicant claimed that control never 1262(8)(A) of PUHCA 2005 (at which analysis are warranted at this time.
vested until the third transaction point a company may be in control of However, the Commission will provide
because of a ‘‘supermajority’’ provision a subsidiary public utility). It is also certain clarifications in light of the
in the operating agreement that required consistent with the blanket concerns raised by commenters in the
approval by 80 percent of the voting authorization granted under section Order No. 669 rulemaking proceeding
stock for a range of decisions, including 203(a)(2) in the Order No. 669 and the March 8 Technical Conference.
the sale of electricity from the plant. rulemaking proceeding, under which 60. In horizontal mergers, if an
The Commission focused on the market- holding companies are pre-authorized to applicant fails the Competitive Analysis
based rate schedule and concluded that acquire up to 9.99 percent of voting Screen (one piece of the Appendix A
the first transaction may have securities of a public utility, as well as analysis), the Commission’s analysis
transferred control over that the proposed section 203(a)(1) blanket focuses on the merger’s effect on the
jurisdictional asset because, even with authorization in the contemporaneous merged firm’s ability and incentive to
one-third of the voting stock, the Notice of Proposed Rulemaking.48 withhold output in order to drive up the
applicant had the authority to influence market price. The ability to withhold
48 Blanket Authorization NOPR, supra note 6. In
all significant decisions, including the output depends on the amount of
The Goldman Sachs Group, Inc., 114 FERC ¶
sale of power from the plant. Further, 61,118 (Goldman), order on reh’g, 115 FERC ¶ marginal capacity controlled by the
the Commission ruled that the material 61,303 (2006), the Commission held that, under merged firm, and the incentive to do so
change in the proportion of interests section 203(a)(2), subsidiaries that are not depends on the amount of infra-
after the second transaction resulted in themselves holding companies are not required to
seek authorization from the Commission to
marginal capacity that could benefit
a change of control.47 purchase, acquire, or take ‘‘covered’’ securities. from higher prices. For example, in a
56. While the purpose of the above Covered securities relate to (1) acquisitions of horizontal merger combining a company
discussion is to provide guidance on securities worth more than $10 million, and (2) with significant baseload capacity with
what, based on past precedent, acquisitions of securities of a transmitting utility, an
electric company, or a holding company in a a company owning capacity on the
constitutes a change of control for holding company system that includes a margin under many season/load
purposes of section 203, the burden transmitting utility, or an electric utility company. conditions, the theory of competitive
remains upon the entities involved in a The Commission also held that subsidiaries’ harm would be that the combination of
proposed transaction to decide whether securities acquisitions are not attributable to the
upstream holding company. Thus, the upstream the ‘‘ability’’ assets with one company’s
they need to obtain Commission holding company also is not required to seek existing ‘‘incentive’’ assets would
authorization under section 203 to section 203(a)(2) authorization for its subsidiaries’ increase the likelihood of the company
undertake a proposed transaction. acquisitions. This does not mean that authorization
may not be required under other provisions of
exercising market power. Proper
2. General Guideline Regarding What Is section 203. For example, if a non-utility subsidiary mitigation would address the harm to
Not a Transfer of Control acquires securities of a public utility, that public competition by reducing the merged
utility must obtain section 203(a)(1)(A) firm’s ‘‘ability’’ assets or its ‘‘incentive’’
57. Based on the industry’s need for authorization if the transaction results in a transfer
assets through divestiture or some other
further guidance on what may or may of control of facilities valued at more than $10
million. Further, if each of a number of non-utility method. In Commonwealth Edison
not constitute a transfer of control of subsidiaries acquires, for example, up to 9.99 Company, we discussed both the ability
jurisdictional facilities under section percent of the same public utility (in order to avoid and the incentive of the merged firm to
203, and for greater regulatory certainty becoming a holding company and/or avoid a
in undertaking utility investments, the transfer of control to a single one of the
49 18 CFR 358.3(c).
subsidiaries), it is possible that the public utility
Commission’s general policy in future disposition of securities to several companies under 50 As part of the screen analysis, applicants must
cases will be to presume that a transfer common control could, taken as a whole, result in define the relevant products sold by the merging
of less than 10 percent of a public a transfer of control. Finally, irrespective of the entities, identify the customers and potential
dollar amount of the transaction, an indirect merger suppliers in the geographic markets that are likely
utility’s holdings is not a transfer of to be affected by the proposed transaction, and
or consolidation could occur and require approval
control if: (1) After the transaction, the under section 203(a)(1)(B). Goldman, 114 FERC ¶ measure the concentration in those markets. Using
acquirer and its affiliates and associate 61,118 at P 13–15. Thus, while the Commission’s the Delivered Price Test to identify alternative
companies, directly or indirectly, in policy as a general matter will be to presume that competing suppliers, the concentration of potential
a transfer of control is not likely where ownership suppliers included in the defined market is then
aggregate will own less than 10 percent in a public utility is less than 10 percent, the measured by the Herfindahl-Hirschman Index (HHI)
burden is on the entities to file under section 203 and used as a screen to determine which
46 See Metropolitan Life Insurance Company, 113
if this threshold is met. The Commission will transactions clearly do not raise market power
FERC ¶ 61,300, at P 6 (2005). continue to review the facts and circumstances of concerns. 1996 Merger Policy Statement, FERC
47 PDI Stoneman, 104 FERC ¶ 61,270 at P 15–17. transactions on a case-by-case basis. Stats. & Regs. ¶ 31,044 at 30,119–20.
withhold output. We found that despite 63. We will continue to analyze Moreover, even where an applicant
screen failures, the merger would not mergers (both horizontal and vertical) passes the HHI screen, the Commission
harm competition in the relevant and other section 203 applications by also considers intervenor theories of
wholesale markets and therefore did not focusing on a transaction’s effect on the competitive harm.
require any mitigation: company’s ability and incentive to
b. Commission-Developed Computer
An examination of market supply exercise market power, and thus harm Simulation Model
conditions shows three reasons why a competition. We expect applicants and
profitable withholding strategy by ComEd intervenors to frame their arguments in 66. Some commenters stated that the
would be unlikely: (a) For most hours during this manner. Commission should develop and
the year, the supply curve is relatively flat, internally run its own computer
so withholding capacity would not 2. Issues Raised at the March 8 simulation model, similar to what is
significantly raise the market price; (b) for Technical Conference done by the U.S. Department of Justice
those hours during which it could a. The Role of HHIs in the Appendix A (DOJ) and the Federal Trade
successfully raise the market price, ComEd Analysis Commission (FTC). Dr. Frankena
would have to forgo sales from its low-cost asserted that using a computer
nuclear capacity; and (c) ComEd’s only 64. Some commenters argued that the simulation model would be more
generation is nuclear which is difficult to Commission was overly focused on the
ramp down or up so as to withhold output
reliable than our alleged practice of
HHI statistic, which measures relying exclusively on applicants to
during the most profitable time periods.51 concentration, and asked that the perform the current Appendix A
61. The Commission also examines Commission look at competitive effects analysis. Mr. Hegedus advocated the use
the possibility of competitive harm in of section 203 transactions that are not of regional models in concert with the
vertical mergers. In the first stage of the apparent from the assessment of process the Commission proposed in the
analysis, the Commission requires concentration.54 market-based rate rulemaking
applicants to calculate the post-merger 65. In fact, as noted above, the proceeding and other proceedings
concentration in both the upstream and Commission does look beyond the involving market power issues. Dr. Moss
downstream markets to determine change in HHI in its analysis of the suggested using an in-house model in a
whether the upstream and downstream effect on competition in both horizontal more limited way, as a consistency
markets are highly concentrated, and vertical mergers. The change in HHI check on submissions rather than as a
because highly concentrated upstream serves as a screen to identify those formal evaluative tool. Dr. Neifer stated
and downstream markets are necessary, transactions that could potentially harm that models are among the many types
but not sufficient, conditions for a competition. If the screen is failed, then, of evidence the DOJ considers in
vertical foreclosure strategy to be as discussed in paragraph 59 above, the evaluating a merger. For example, the
effective. If both of those necessary Commission examines the factors that DOJ uses simple models that evaluate
conditions are present, then the second could affect competition in the relevant the costs and benefits of the merger as
stage of the analysis focuses on whether market. Specifically, in these well as more complex ones that model
the merger creates or enhances the circumstances the Commission typically a firm’s decision to operate a generating
ability or incentive of the merged firm considers a case-specific theory of unit in the markets at issue.
to exercise vertical market power competitive harm, which includes, but 67. Other commenters argued that the
through vertical foreclosure or raising is not limited to, an analysis of the costs for the Commission to develop and
rivals’ costs.52 merged firm’s ability and incentive to run its own computer simulation model
62. For example, in AEP/CSW, the withhold output in order to drive up would exceed any related benefits. Mr.
Commission found—without relying prices. Again, and as noted above, the Baliff argued that it would be difficult
solely on changes in HHI statistics—that Commission has discussed its to use any model unless it were
the merger of two vertically integrated consideration of such factors in cases generally accepted, well known, and
utilities with both transmission and such as Commonwealth Edison accessible to all so that applicants could
generation assets would harm Company. Further, the Filing know whether their proposed
competition by enhancing the ability Requirements Rule requires applicants transactions passed muster. In addition,
and incentive for the merged firm to use failing the screen to address market different models focus on different
control of its transmission assets to conditions beyond the change in HHI: decisions—bidding decisions, supply
frustrate competitors’ access to relevant The facts of each case (e.g., market
decisions, pricing decisions—and some
markets. The Commission therefore conditions, such as demand and supply or all of these may be relevant. Mr.
required that AEP turn over control of elasticity, ease of entry and market rules, as Hegedus argued that the Commission
its transmission facilities to a well as technical conditions, such as the should develop regional models to
Commission-approved Regional types of generation involved) determine analyze mergers based on the
whether the merger would harm competition. information available from its analyses
Transmission Operator and, in the When there is a screen failure, applicants
interim, be subject to market monitoring of market-based rate authorizations and
must provide evidence of relevant market through its Office of Enforcement.
by an independent entity and have an conditions that indicate a lack of a 68. We will not develop and run our
independent entity calculate and post competitive problem or they should propose own computer simulation model in lieu
the available transfer capacity on AEP’s mitigation.55
of or in addition to the Delivered Price
transmission system.53
Test model that we already require
Association, Inc. v. FERC, 268 F.3d 1105 (D.C. Cir.
51 Commonwealth Edison Company, 91 FERC ¶ 2001).
applicants to perform as part of the
61,036, at 61,133 n.42 (2000). 54 See, e.g., Comments of Darren Bush, March 8 Competitive Analysis Screen. While
52 See Filing Requirements Rule, FERC Stats. & Technical Conference, Tr. 23; Comments of Mark advocates of computer simulation
Regs. ¶ 31,111 at 31,910–11. Hegedus, March 8 Technical conference, Tr. 94–95; models believe that such models would
53 American Electric Power Company and Central Comments of Diana Moss, March 8 Technical more accurately analyze the effect on
and Southwest Corporation, Opinion No. 442, 90 Conference, Tr. 101; Comments of Mark J. Niefer,
FERC ¶ 61,242, at 61,788–90 (AEP/CSW ), order on March 8 Technical Conference, Tr. 108. competition, and some believe they will
reh’g, Opinion No. 442–A, 91 FERC ¶ 61,129 (2000), 55 Filing Requirements Rule, FERC Stats. & Regs. allow better coordination with other
appeal denied sub nom., Wabash Valley Power ¶ 31, 111 at 31, 897. Commission programs involving market
power issues, these advocates have not considerations relevant in proceedings accuracy of the results and the
demonstrated how the Commission’s under section 203 of the FPA. sensitivity of the results to changes in
use of an internal model would have 71. We also note that some the underlying assumptions. In
altered any Commission determinations commenters urging the Commission to addition, the models and input data are
on previous section 203 applications. develop and run its own internal available to intervenors in the
While the benefits of a Commission- computer simulation model are proceeding, who can also verify the
internal computer simulation model mistakenly assuming that the current accuracy of the results and perform
have not been well-defined or process is flawed because applicants sensitivity tests.
quantified, we believe that the costs of can file merger impact studies using 73. A complete Competitive Screen
such a modeling requirement in time their own methodologies and Analysis submission provides sufficient
and resources to applicants, intervenors, assumptions. On the contrary, in the information to identify those
and Commission staff would be likely to 1996 Merger Policy Statement, in the transactions that may harm competition.
exceed any benefits. Filing Requirements Rule and in many The data submitted includes a valuable
69. It also should be emphasized that subsequent orders interpreting those intermediate calculation: A supply
those who advocate use of an internal issuances, the Commission has carefully curve of all the generators that can
modeling overlook important set forth the requirements of how the possibly serve the area, and whether
differences between Commission Commission’s adopted study those generators are dispatched given
proceedings under section 203 and the methodology, the Delivered Price Test, transmission constraints. Finding the
processes used by the DOJ and the FTC must be performed and what supply curve requires an estimate of
to review mergers and acquisitions. The assumptions the Commission will suppliers’ generation costs, including
Commission’s process of reviewing accept as reasonable. If applicants fail to fuel costs, operation and maintenance
mergers and acquisitions under section perform the studies according to the costs, heat rates, and emissions costs;
203 is a public one. An application is Commission’s prescribed methodology, competitive market prices; transmission
filed publicly, all interested parties have or their studies are based on faulty prices; and transmission import
the ability to comment, and the assumptions or use questionable data constraints.58 Whether the Commission
Commission decides the case based on inputs, then those studies are required grants the merger application with or
the public record. Our Appendix A to be amended or supplemented with without conditions, rejects it, or sets it
analysis facilitates this public process additional data.56 In some cases the for hearing, the Commission can
by requiring the submission of a Commission has required that new determine whether the application
transparent market power study, using studies be conducted which conform to presents any competitive issues because
standardized assumptions and criteria, the Commission’s standards. Thus, the current Competitive Analysis Screen
that is available for review and contrary to the view of some is sufficiently precise to make such a
comment by all interested parties, commenters, neither the Commission determination.
including state commissions and nor intervenors are disadvantaged by 74. In summary, there has been no
customers, and, importantly, can be our current policy of requiring showing that a Commission-internal
replicated by them in the limited time applicants to perform the merger impact computer simulation model is needed,
period available for public comment. studies, nor is the Commission subject both in light of these burdens as well as
Similarly, when mitigation measures are to manipulation by applicants who can because the study that the Commission
necessary in Commission proceedings, allegedly game the studies to their own already requires applicants to perform is
they are based on the public record and benefit. Studies which do not conform adequate to measure the potential for
available for comment by all interested to the Commission’s explicit competitive harm associated with
parties. requirements are either rejected or section 203 dispositions. And, as noted
70. By contrast, the DOJ and the FTC required to be revised until they do above, the Commission is diligent in
use largely informal and non-public conform, and intervenors have ensuring that applicants conduct the
processes for reviewing transactions opportunity in every merger proceeding Competitive Analysis Screen properly,
subject to their jurisdiction. Their to inform the Commission if they including using reasonable assumptions
meetings with applicants are not believe that something in the applicant’s and data inputs.
noticed to the public and are less formal study is amiss.
in nature. This provides the DOJ and the 72. Specifically, merger applicants c. Adding Hart-Scott-Rodino
FTC greater flexibility to use, among must submit the model and all of the Information to the Section 203 Record
other things, internal modeling tools data inputs necessary for completing the 75. Some commenters suggested that
that may not be easily replicated or Competitive Analysis Screen in any the Commission require applicants to
other methodological approaches that section 203 Application requiring a file all materials submitted to the DOJ
are stylized to an individual case. In complete Appendix A analysis.57 In and the FTC in their Hart-Scott-Rodino
DOJ and FTC proceedings, staff and those cases, Commission staff reviews (HSR) filings. Other commenters noted
applicants can engage in extensive the data supplied and runs the that such a filing would create
informal communications to discuss applicants’ models to check the confidentiality concerns due to the
and address data, methodological and public nature of the Commission’s
other disputes that are associated with 56 For example, in Entergy Gulf States, Inc.,
section 203 proceedings. We also share
these more stylized approaches. Commission Staff was unable to verify the results
those concerns. Unlike the DOJ and the
Similarly, when mitigation is required, of applicants’ model performing the Competitive
Analysis Screen, and sent the applicants a FTC, who can keep any of the
staff and applicants can design such deficiency letter identifying the error in the input information confidential, our
mitigation measures in a non-public data and requiring the applicants to submit the proceedings require a public record, and
manner. In sum, these more informal corrected data. Entergy Gulf States, Inc., Docket No.
our decisions must be based on
processes, while entirely appropriate in EC07–70–000, at 1 (Apr. 6, 2007) (unpublished
deficiency letter). evidence that is available to the parties

the context of DOJ and FTC review of 57 In cases involving a de minimis amount of
mergers and transactions, simply cannot generation being combined in the relevant 58 See 1996 Merger Policy Statement, FERC Stats.
be replicated by the Commission given geographic market, applicants are not required to & Regs. ¶ 31,044 at 30,130–33 (discussion of the
the due process and other perform a complete Appendix A analysis. delivered price test).
of record in the proceeding. We permit 79. The determination on whether a The applicant will not be penalized
applicants to request confidentiality for long-term generation contract should be for failure to respond to this information
certain documents and file a protective attributed to the purchaser of power or collection unless the information
order to allow intervenors to view those the seller depends on the party with collection displays a valid OMB control
documents. However, we cannot operational control, which depends number or the Commission has
maintain the same degree of upon the specific contract. Therefore, provided justification as to why the
confidentiality as do the DOJ and the we have required that applicants file control number should not be
FTC.59 The HSR filings often contain information about whether their long- displayed.
highly sensitive proprietary documents term generation contracts confer Respondents: Businesses or other for
such as the companies’ price forecasts, operational control over generation profit.
pricing analyses, and pricing resources to the purchaser. Our practice Frequency of Responses: N/A.
decisions.60 Access to such valuable has been to attribute contracted capacity
Necessity of the Information: This
commercial information could not only to the purchaser if such a contract
Supplemental Policy Statement
harm the merging companies, it could confers operational control over the
provides guidance regarding future
also harm competition in wholesale generation to the purchaser.62 We will
implementation of FPA section 203. The
electricity markets by facilitating continue this practice, and require
Commission is not proposing any
coordination by competitors, who applicants to file purchase and sales
changes to its current regulations.
would have a better understanding of data, including information on whether
each other’s pricing strategies and the terms and conditions of purchase Internal Review: The Commission has
competitive objectives. contracts confer operational control over conducted an internal review of the
generation to the purchaser. However, if public reporting burden associated with
d. Alternatives to Trial-Type Hearings the collection of information and
an applicant fails the Competitive
76. Some commenters suggested that Analysis Screen, we will consider assured itself, by means of internal
the Commission use alternatives to trial- arguments regarding the ability and review, that there is specific, objective
type evidentiary hearing procedures, incentive of the merged firm to exercise support for its existing information
including technical conferences and market power, and therefore consider burden estimate.
paper hearings with limited periods of the merged firm’s contractual positions 81. Interested persons may obtain
discovery and additional data requests. as well as its physical control of information on the reporting
77. Given the statutory deadlines generation. requirements by contacting: Federal
faced by the Commission on section 203 Energy Regulatory Commission, 888
applications,61 we believe that holding III. Information Collection Statement First Street, NE., Washington, DC, 20426
an evidentiary hearing generally will 80. The Office of Management and [Attention: Michael Miller, Office of the
not be feasible, depending on the issues Budget’s (OMB) regulations require that Executive Director, Phone (202) 502–
in dispute. Therefore, in cases that OMB approve certain information 8415, fax (202) 273–0873, e-mail:
present complicated factual disputes, collection and data retention michael.miller@ferc.gov]. Comments on
we will consider alternatives such as requirements imposed by agency the requirements of the Supplemental
paper hearings with a limited period of rules.63 In this supplemental policy Policy Statement may also be sent to the
discovery, so that we can develop a statement, the Commission is providing Office of Information and Regulatory
complete record. guidance regarding future Affairs, Office of Management and
implementation of FPA section 203. The Budget, Washington, DC 20503
e. Attribution of Generation Under [Attention: Desk Officer for the Federal
Contract Commission is not imposing any
additional information collection Energy Regulatory Commission, fax
78. Some commenters also requested requirement upon the public. The (202) 395–7285, e-mail
clarification on how generation under Commission is not proposing any oira_submission@omb.eop.gov].
contract should be attributed in the changes to its current regulations. IV. Environmental Analysis
analysis of market concentration. Accordingly, there should be no impact
Specifically, they asked whether the on the current reporting burden 82. The Commission is required to
generation should be attributed to the associated with an individual section prepare an Environmental Assessment
party with operational control of the 203 application. The Commission also or an Environmental Impact Statement
generation facility or to the party with does not expect the total number of for any action that may have a
the economic interest in the capacity. section 203 applications to be affected significant adverse effect on the human
by this Supplemental Policy Statement. environment.64 The Commission has
59 As Mark J. Niefer noted, ‘‘the [Antitrust]
However, the Commission will submit categorically excluded certain actions
Division [of the DOJ] is precluded from sharing from this requirement as not having a
much of the information it gathers to analyze a
for informational purposes only a copy
merger’’ and ‘‘[e]xcept in very limited of this Supplemental Policy Statement significant effect on the human
circumstances, information provided to the to OMB. environment.65 The Supplemental
Division * * * may not be disclosed to others Burden Estimate: The Public Policy Statement is categorically
without the consent of the producing party.’’ excluded as it addresses actions under
Comments of Mark J. Niefer, March 8 Technical Reporting and records retention burden
Conference, Tr. 106–07. for section 203 applications is as section 203.66 Accordingly, no
60 See Federal Trade Commission, Introductory follows. environmental assessment is necessary
Guide III to the Premerger Notification Program, Title: FERC–519, ‘‘Application Under and none has been prepared in this
Model Request for Additional Information and Supplemental Policy Statement.
Documentary Material (Second Request) (revised the Federal Power Act, Section 203’’.
May 2007), available at http://www.ftc.gov/bc/hsr/ Action: Revised Collection.
64 Regulations Implementing the National
introguides/guide3.pdf.
61 Under revised section 203, the Commission

OMB Control No.: 1902–0082. Environmental Policy Act, Order No. 486, 52 FR
must act within 180 days of a complete application, 47897 (Dec. 17, 1987), FERC Stats. & Regs.,
and with good cause may extend the deadline 62 See Filing Requirements Rule, FERC Stats. & Regulations Preambles 1986–1990 ¶ 30,783 (1987).
another 180 days. If not, the authorization is Regs. ¶ 31,111 at 31,888. 65 18 CFR 380.4.
granted by law. 63 5 CFR 1320. 66 See 18 CFR 380.4(a)(16).
V. Regulatory Flexibility Act in eLibrary, type the docket number calves for the treatment of various
Certification (excluding the last three digits of the bacterial diseases.
83. The Regulatory Flexibility Act of docket number), in the docket number DATES: This rule is effective August 2,
1980 (RFA) 67 requires agencies to field. 2007.
prepare certain statements, descriptions 87. User assistance is available for FOR FURTHER INFORMATION CONTACT: John
and analyses of proposed rules that will eLibrary and the Commission’s website K. Harshman, Center for Veterinary
have a significant economic impact on during normal business hours. For Medicine (HFV–104), Food and Drug
a substantial number of small entities.68 assistance, please contact FERC Online Administration, 7500 Standish Pl.,
However, the RFA does not define Support at (202) 502–6652 (toll-free at Rockville, MD 20855, 301–827–0169, e-
‘‘significant’’ or ‘‘substantial.’’ Instead, 1–866–208–3676) or e-mail at mail: john.harshman@fda.hhs.gov.
the RFA leaves it up to an agency to ferconlinesupport@ferc.gov, or the
SUPPLEMENTARY INFORMATION: Norbrook
determine the effect of its regulations on Public Reference Room at (202) 502–
Laboratories, Ltd., Station Works,
small entities. 8371, TTY (202) 502–8659. E-mail the
Newry BT35 6JP, Northern Ireland, filed
84. Most filing companies regulated Public Reference Room at
ANADA 200–452 that provides for use
by the Commission do not fall within public.referenceroom@ferc.gov.
of OXYTET 10 (oxytetracycline
the RFA’s definition of small entity.69 VII. Effective Date and Congressional hydrochloride) Injection in beef cattle,
Further, as noted above, the Notification beef calves, nonlactating dairy cattle,
Supplemental Policy Statement does not and dairy calves for the treatment of
propose any changes to the 88. This Supplemental Policy
various bacterial diseases. Norbrook
Commission’s current regulations under Statement is effective July 20, 2007. The
Laboratories, Ltd.’s OXYTET 10
section 203; therefore there is no change Commission has determined that,
Injection is approved as a generic copy
in how the Commission’s regulations consistent with the discussion above
of Boehringer Ingelheim Vetmedica,
under section 203 affect small entities. with regard to information collection
Inc.’s, MEDAMYCIN Injectable
Therefore, the Commission certifies that and the RFA, this policy statement also
approved under NADA 108–963. The
the Supplemental Policy Statement will is not a ‘‘major rule’’ as defined in
ANADA is approved as of June 27, 2007,
not have a significant economic impact section 351 of the Small Business and the regulations are amended in 21
on a substantial number of small Regulatory Enforcement Fairness Act of CFR 522.1662a to reflect the approval.
entities. As a result, no regulatory 1996. The Commission will submit this In accordance with the freedom of
flexibility analysis is required. Supplemental Policy Statement to both information provisions of 21 CFR part
houses of Congress and to the General 20 and 21 CFR 514.11(e)(2)(ii), a
VI. Document Availability Accounting Office. summary of safety and effectiveness
85. In addition to publishing the full data and information submitted to
List of Subjects in 18 CFR Part 33
text of this document in the Federal support approval of this application
Register, the Commission provides all Electric utilities, Reporting and may be seen in the Division of Dockets
interested persons an opportunity to recordkeeping requirements, Securities. Management (HFA–305), Food and Drug
view and/or print the contents of this By the Commission. Administration, 5630 Fishers Lane, rm.
document via the Internet through the Kimberly D. Bose, 1061, Rockville, MD 20852, between 9
Commission’s Home Page (http:// Secretary. a.m. and 4 p.m., Monday through
www.ferc.gov) and in the Commission’s Friday.
[FR Doc. E7–14956 Filed 8–1–07; 8:45 am]
Public Reference Room during normal FDA has determined under 21 CFR
BILLING CODE 6717–01–P
business hours (8:30 a.m. to 5 p.m. 25.33(a)(1) that this action is of a type
Eastern time) at 888 First Street, NE., that does not individually or
Room 2A, Washington DC 20426. cumulatively have a significant effect on
86. From the Commission’s Home DEPARTMENT OF HEALTH AND the human environment. Therefore,
Page on the Internet, this information is HUMAN SERVICES neither an environmental assessment
available in the Commission’s document nor an environmental impact statement
management system, eLibrary. The full Food and Drug Administration is required.
text of this document is available on This rule does not meet the definition
eLibrary in PDF and Microsoft Word 21 CFR Part 522 of ‘‘rule’’ in 5 U.S.C. 804(3)(A) because
format for viewing, printing, and/or it is a rule of ‘‘particular applicability.’’
downloading. To access this document Implantation or Injectable Dosage Therefore, it is not subject to the
Form New Animal Drugs; congressional review requirements in 5
67 5 U.S.C. 601–12. Oxytetracycline Hydrochloride U.S.C. 801–808.
68 The RFA definition of ‘‘small entity’’ refers to Injection
the definition provided in the Small Business Act, List of Subjects in 21 CFR Part 522
which defines a ‘‘small business concern’’ as a AGENCY: Food and Drug Administration, Animal drugs.
business that is independently owned and operated HHS.
and that is not dominant in its field of operation. ■ Therefore, under the Federal Food,
15 U.S.C. 632. The Small Business Size Standards ACTION: Final rule. Drug, and Cosmetic Act and under
component of the North American Industry authority delegated to the Commissioner
Classification System defines a small electric utility SUMMARY: The Food and Drug
as one that, including its affiliates, is primarily Administration (FDA) is amending the of Food and Drugs and redelegated to
engaged in the generation, transmission, and/or the Center for Veterinary Medicine, 21
animal drug regulations to reflect
distribution of electric energy for sale and whose CFR part 522 is amended as follows:
total electric output for the preceding fiscal year did approval of an abbreviated new animal
not exceed 4 million MWh. 13 CFR 121.201. drug application (ANADA) filed by PART 522—IMPLANTATION OR
Norbrook Laboratories, Ltd. The
69 5 U.S.C. 601(3), citing to section 3 of the Small

INJECTABLE DOSAGE FORM NEW
Business Act, 15 U.S.C. 632. Section 3 of the Small ANADA provides for use of an
Business Act defines a ‘‘small-business concern’’ as ANIMAL DRUGS
a business which is independently owned and
oxytetracycline hydrochloride injectable
operated and which is not dominant in its field of solution in beef cattle, beef calves, ■ 1. The authority citation for 21 CFR
operation. nonlactating dairy cattle, and dairy part 522 continues to read as follows:

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Federal Register / Vol. 72, No.

148 / Thursday, August 2, 2007 / Rules and Regulations 42277

REGISTRATION AND MEMBER

assets and ratings of the regulated utility from the

at P 47 (2005. In the concurrent Affiliate

20 See, e.g., Comments of Clifford M. Naeve,

December 7 Technical Conference, Tr. 91–92;

24 Members of FIEG include: Bank of America,

securities of another public utility if over $10

31 Market-Based Rates for Wholesale Sales of (2003) (PDI Stoneman).

owns or operates facilities subject to the jurisdiction

deficiency letter). evidence that is available to the parties

61 Under revised section 203, the Commission

granted by law. 63 5 CFR 1320. 66 See 18 CFR 380.4(a)(16).

69 5 U.S.C. 601(3), citing to section 3 of the Small

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