Section 203 Supplemental Policy Statement
FederalAgency guidance
Ask Donna
How this section applies to your facts.
FERC Policy Statements › Section 203 Supplemental Policy Statement
Text
120 FERC ¶ 61,060
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
18 CFR Part 33
(Docket No. PL07-1-000)
FPA Section 203 Supplemental Policy Statement
(Issued July 20, 2007)
AGENCY: Federal Energy Regulatory Commission.
ACTION: Policy Statement.
SUMMARY: The Federal Energy Regulatory Commission is providing guidance
regarding future implementation of section 203 of the Federal Power Act. In the
Supplemental Policy Statement the Commission adopts policies and provides
clarifications intended to continue the encouragement of beneficial utility industry
investment while also providing for effective customer protections, including working in
a complementary fashion with the states in protecting customers.
EFFECTIVE DATE: This Supplemental Policy Statement is effective [insert date of
issuance].
FOR FURTHER INFORMATION CONTACT:
Carla Urquhart (Legal Information)
Office of the General Counsel
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, D.C. 20426
(202) 502-8496
Docket No. PL07-1-000
- 2 -
Roshini Thayaparan (Legal Information)
Office of the General Counsel
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, D.C. 20426
(202) 502-6857
David Hunger (Technical Information)
Office of Energy Markets and Reliability
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, D.C. 20426
(202) 502-8148
Andrew P. Mosier, Jr. (Technical Information)
Office of Energy Markets and Reliability
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, D.C. 20426
hington, D.C. 20426
(202) 502-6857
David Hunger (Technical Information)
Office of Energy Markets and Reliability
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, D.C. 20426
(202) 502-8148
Andrew P. Mosier, Jr. (Technical Information)
Office of Energy Markets and Reliability
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, D.C. 20426
(202) 502-6274
SUPPLEMENTARY INFORMATION:
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Joseph T. Kelliher, Chairman;
Suedeen G. Kelly, Marc Spitzer,
Philip D. Moeller, and Jon Wellinghoff.
FPA Section 203 Supplemental Policy Statement
Docket No. PL07-1-000
FPA SECTION 203 SUPPLEMENTAL POLICY STATEMENT
(Issued July 20, 2007)
1.
The Commission is issuing this Policy Statement as a supplement to the
Commission’s rulemakings issued in 2006 to implement provisions of the Energy Policy
Act of 20051 and also as a supplement to its 1996 Merger Policy Statement.2 The 2006
rulemakings addressed amendments to the Commission’s corporate review authority
under section 203 of the Federal Power Act (FPA),3 the repeal of the Public Utility
1 Pub. L. No. 109-58, 119 Stat. 594 (2005) (EPAct 2005).
2 Inquiry Concerning the Commission’s Merger Policy Under the Federal Power
Act: Policy Statement, Order No. 592, 61 FR 68595 (Dec. 30, 1996), FERC Stats. &
Regs. ¶ 31,044 (1996) (1996 Merger Policy Statement), reconsideration denied, Order
No. 592-A, 62 FR 33341 (June 19, 1997), 79 FERC ¶ 61,321 (1997).
3 16 U.S.C. 824b (2000), amended by EPAct 2005, Pub. L. No. 109-58, 1289,
119 Stat. 594, 982-83 (2005). See also Transactions Subject to FPA section 203, Order
No. 669, 71 FR 1348 (Jan. 6, 2006), FERC Stats. & Regs. ¶ 31,200 (2005), order on
reh’g, Order No. 669-A, 71 FR 28422 (May 16, 2006), FERC Stats. & Regs
denied, Order
No. 592-A, 62 FR 33341 (June 19, 1997), 79 FERC ¶ 61,321 (1997).
3 16 U.S.C. 824b (2000), amended by EPAct 2005, Pub. L. No. 109-58, 1289,
119 Stat. 594, 982-83 (2005). See also Transactions Subject to FPA section 203, Order
No. 669, 71 FR 1348 (Jan. 6, 2006), FERC Stats. & Regs. ¶ 31,200 (2005), order on
reh’g, Order No. 669-A, 71 FR 28422 (May 16, 2006), FERC Stats. & Regs. ¶ 31,214,
(continued)
Docket No. PL07-1-000
- 2 -
Holding Company Act of 19354 and the enactment of the Public Utility Holding
Company Act of 2005.5 Based on our experience in implementing the new laws thus far,
and on the two technical conferences in which industry participants and state
commissioners provided input on key issues, including the protection of captive
customers against inappropriate cross-subsidization and the need to provide sufficient
flexibility to encourage industry investment that benefits customers, the Commission
finds that it is appropriate to provide guidance in this Policy Statement regarding future
implementation of section 203. We clarify that this Policy Statement supplements, and
does not replace, any part of the Commission’s 1996 Merger Policy Statement.
2.
This Policy Statement is one of three actions being taken based on the
Commission’s experience implementing amended FPA section 203 and PUHCA 2005, as
well as the record from the Commission’s December 7, 2006 and March 8, 2007
technical conferences regarding section 203 and PUHCA 2005. In addition, in separate
order on reh’g, Order No. 669-B, 71 FR 42579 (July 27, 2006), FERC Stats. & Regs.
¶ 31,225 (2006).
4 16 U.S.C. 79a et seq. (PUHCA 1935).
5 EPAct 2005, Pub. L. No. 109-58, 1261, et seq., 119 Stat. 594, 972-78 (PUHCA
2005)
n addition, in separate
order on reh’g, Order No. 669-B, 71 FR 42579 (July 27, 2006), FERC Stats. & Regs.
¶ 31,225 (2006).
4 16 U.S.C. 79a et seq. (PUHCA 1935).
5 EPAct 2005, Pub. L. No. 109-58, 1261, et seq., 119 Stat. 594, 972-78 (PUHCA
2005). See also Repeal of the Public Utility Holding Company Act of 1935 and
Enactment of the Public Utility Holding Company Act of 2005, Order No. 667, 70 FR
75592 (Dec. 20, 2005), FERC Stats. & Regs. ¶ 31,197 (2005), order on reh’g, Order No.
667-A, 71 FR 28446 (May 16, 2006), FERC Stats. & Regs. ¶ 31,213, order on reh’g,
Order No. 667-B, 71 FR 42750 (July 28, 2006), FERC Stats. & Regs. ¶ 31,224 (2006),
order on reh’g, Order No. 667-C, 72 FR 8277 (Feb. 26, 2007), 118 FERC ¶ 61,133
(2007).
Docket No. PL07-1-000
- 3 -
orders, the Commission is concurrently issuing a Notice of Proposed Rulemaking
proposing to grant a limited blanket authorization for certain dispositions of jurisdictional
facilities under FPA section 203(a)(1)6 and a Notice of Proposed Rulemaking proposing
to codify restrictions on affiliate transactions between franchised public utilities with
captive customers and their market-regulated power sales affiliates or non-utility
affiliates.7
I.
Background
3.
In 1996, the Commission issued the 1996 Merger Policy Statement updating and
clarifying the Commission’s procedures, criteria and policies concerning public utility
mergers under section 203 of the FPA.8 The purpose of the 1996 Merger Policy
Statement was to ensure that mergers are consistent with the public interest and to
provide greater certainty and expedition in the Commission’s analysis of merger
applications
issued the 1996 Merger Policy Statement updating and
clarifying the Commission’s procedures, criteria and policies concerning public utility
mergers under section 203 of the FPA.8 The purpose of the 1996 Merger Policy
Statement was to ensure that mergers are consistent with the public interest and to
provide greater certainty and expedition in the Commission’s analysis of merger
applications. The 1996 Merger Policy Statement refined and modified the Commission’s
merger policy “in light of dramatic and continuing changes in the electric power industry
and corresponding changes in the regulation of that industry.”9
6 Blanket Authorization Under FPA Section 203, 120 FERC ¶ 61,062 (2007)
(issued in Docket No. RM07-21-000) (Blanket Authorization NOPR).
7 Cross-Subsidization Restrictions on Affiliate Transactions, 120 FERC
¶ 61,061(2007) (issued in Docket No. RM07-15-000) (Affiliate Transactions NOPR).
8 Supra note 2.
9 1996 Merger Policy Statement, FERC Stats. & Regs. ¶ 31,044, at 30,110.
Docket No. PL07-1-000
- 4 -
4.
In the 1996 Merger Policy Statement, the Commission set out the three factors it
generally considers when analyzing whether a proposed section 203 transaction10 is
consistent with the public interest: effect on competition, effect on rates, and effect on
regulation. In 2000, the Commission issued the Filing Requirements Rule,11 which
updated the filing requirements under 18 CFR Part 33 of the Commission’s regulations
for section 203 applications. Among other things, the Filing Requirements Rule codified
the Commission’s screening approach to quickly identify mergers that may raise
horizontal competitive concerns, provided specific filing requirements consistent with
Appendix A of the 1996 Merger Policy Statement, established guidelines for vertical
competitive analysis, and set forth filing requirements for mergers that potentially raise
vertical market power concerns
uirements Rule codified
the Commission’s screening approach to quickly identify mergers that may raise
horizontal competitive concerns, provided specific filing requirements consistent with
Appendix A of the 1996 Merger Policy Statement, established guidelines for vertical
competitive analysis, and set forth filing requirements for mergers that potentially raise
vertical market power concerns. The revised filing requirements are in effect today, as
recently modified (discussed below), and they assist the Commission in determining
whether section 203 transactions are consistent with the public interest, provide more
certainty to applicants regarding what showings must be made to satisfy the
10 Although the Commission applies these factors to all section 203 transactions,
not just mergers, the filing requirements and the level of detail required may differ. 1996
Merger Policy Statement, FERC States & Regs. ¶ 31,044, at 30,113 n.7. See also
18 CFR 2.26 (codifying the 1996 Merger Policy Statement).
11 Revised Filing Requirements Under Part 33 of the Commission’s Regulations,
Order No. 642, 65 FR 70984 (Nov. 28, 2000), FERC Stats. & Regs. ¶ 31,111 (2000)
(Filing Requirements Rule), order on reh’g, Order No. 642-A, 66 FR 16121 (Mar. 23,
2001), 94 FERC ¶ 61,289 (2001) (codified at 18 CFR Part 33).
Docket No. PL07-1-000
- 5 -
Commission’s concerns under section 203, and expedite the Commission’s review of
such applications.
5.
The scope of the Commission’s section 203 review was expanded by EPAct 2005
00), FERC Stats. & Regs. ¶ 31,111 (2000)
(Filing Requirements Rule), order on reh’g, Order No. 642-A, 66 FR 16121 (Mar. 23,
2001), 94 FERC ¶ 61,289 (2001) (codified at 18 CFR Part 33).
Docket No. PL07-1-000
- 5 -
Commission’s concerns under section 203, and expedite the Commission’s review of
such applications.
5.
The scope of the Commission’s section 203 review was expanded by EPAct 2005.
Among other things, amended section 203: (1) expands the Commission’s review
authority to include authority over certain holding company mergers and acquisitions, as
well as certain public utility acquisitions of generating facilities; (2) requires that, prior to
approving a disposition under section 203, the Commission must determine that the
transaction would not result in inappropriate cross-subsidization of non-utility affiliates
or encumbrance of utility assets;12 and (3) imposes statutory deadlines for acting on
mergers and other jurisdictional transactions.
6.
Through the Order No. 669 rulemaking proceeding, the Commission promulgated
regulations adopting certain modifications to 18 CFR § 2.26 and Part 33 to implement
amended section 203. The Commission also provided blanket authorizations for certain
transactions subject to section 203. These blanket authorizations were crafted to ensure
that there is no harm to captive utility customers, but sought to accommodate investments
in the electric utility industry by facilitating market liquidity. Some commenters in the
rulemaking proceeding urged the Commission to grant additional blanket authorizations.
12 Section 203(a)(4) is not an absolute prohibition on the cross-subsidization of a
non-utility associate company or the pledge or encumbrance of utility assets for the
benefit of an associate company. If the Commission determines that the cross-
subsidization, pledge or encumbrance will be consistent with the public interest, such
action may be permitted.
12 Section 203(a)(4) is not an absolute prohibition on the cross-subsidization of a
non-utility associate company or the pledge or encumbrance of utility assets for the
benefit of an associate company. If the Commission determines that the cross-
subsidization, pledge or encumbrance will be consistent with the public interest, such
action may be permitted.
Docket No. PL07-1-000
- 6 -
Other commenters argued that the Commission should adopt additional generic rules to
guard against inappropriate cross-subsidization associated with the mergers. Certain
commenters argued that the Commission should modify its competitive analysis for
mergers, which has been in place for 10 years. The Commission stated that it would
reevaluate these and other issues at a future technical conference on the Commission’s
section 203 regulations as well as certain issues raised in the Order No. 667 rulemaking
proceeding implementing PUHCA 2005.
7.
On December 7, 2006, the Commission held a technical conference (December 7
Technical Conference) to discuss several of the issues that arose in the Order No. 667 and
Order No. 669 rulemaking proceedings. The December 7 Technical Conference
discussed a range of topics. The first panel discussed whether there are additional
actions, under the FPA or the Natural Gas Act (NGA), that the Commission should take
to supplement the protections against cross-subsidization that were implemented in the
Order No. 667 and Order No. 669 rulemaking proceedings. The second panel discussed
whether, and if so how, the Commission should modify its Cash Management Rule13 in
light of PUHCA 2005, and whether the Commission should codify specific safeguards
that must be adopted for cash management programs and money pool agreements and
transactions. The third panel discussed whether modifications to the specific exemptions,
13 Regulation of Cash Management Practices, Order No
should modify its Cash Management Rule13 in
light of PUHCA 2005, and whether the Commission should codify specific safeguards
that must be adopted for cash management programs and money pool agreements and
transactions. The third panel discussed whether modifications to the specific exemptions,
13 Regulation of Cash Management Practices, Order No. 634, 68 FR 40500
(July 8, 2003), FERC Stats. & Regs. ¶ 31,145, revised, Order No. 634-A, 68 FR 61993
(Oct. 31, 2003), FERC Stats. & Regs. ¶ 31,152 (2003) (Cash Management Rule).
Docket No. PL07-1-000
- 7 -
waivers and blanket authorizations set forth in the Order No. 667 and Order No. 669
rulemaking proceedings are warranted. Post-technical conference comments were
accepted.
8.
On March 8, 2007, the Commission held a second technical conference (March 8
Technical Conference) to discuss whether the Commission’s section 203 policy should be
revised and, in particular, whether the Commission’s Appendix A merger analysis is
sufficient to identify market power concerns in today’s electric industry market
environment. The first panel discussed whether the Appendix A analysis is appropriate
to analyze a merger’s effect on competition, given the changes that have occurred in the
industry (e.g., the development of Regional Transmission Organizations (RTOs)) and
statutory changes (e.g., as a result of the repeal of PUHCA 1935 and new authorities
given to the Commission in EPAct 2005). The second panel assessed the factors the
Commission uses in reviewing mergers and the coordination between the Commission
and other agencies (including state commissions) with merger review responsibility.
II.
Discussion
9.
Based on the Commission’s experiences thus far in implementing amended section
203, the input received through the Order No
given to the Commission in EPAct 2005). The second panel assessed the factors the
Commission uses in reviewing mergers and the coordination between the Commission
and other agencies (including state commissions) with merger review responsibility.
II.
Discussion
9.
Based on the Commission’s experiences thus far in implementing amended section
203, the input received through the Order No. 669 rulemaking proceeding, and the
comments received in response to the December 7 and March 8 Technical Conferences,
the Commission finds that additional clarification and guidance regarding our section 203
policy are warranted. The Commission will provide certain clarifications and guidance
concerning: (1) the information that must be filed as part of section 203 applications for
Docket No. PL07-1-000
- 8 -
transactions that do not raise cross-subsidization concerns; (2) the types of applicant
commitments and ring-fencing measures that, if offered, might address cross-
subsidization concerns;14 (3) the scope of blanket authorizations under sections 203(a)(1)
and 203(a)(2); (4) what constitutes a disposition of control of jurisdictional facilities for
purposes of section 203; and (5) the Commission’s Appendix A analysis.
10.
We note that amended section 203 and PUHCA 2005 did not become effective
until February 2006. The Commission thus has had only 18 months’ experience under
the new laws. Therefore, we will continue to monitor the issues that arise under section
203, including cross-subsidization issues, and re-evaluate our regulatory approach as
appropriate
nd (5) the Commission’s Appendix A analysis.
10.
We note that amended section 203 and PUHCA 2005 did not become effective
until February 2006. The Commission thus has had only 18 months’ experience under
the new laws. Therefore, we will continue to monitor the issues that arise under section
203, including cross-subsidization issues, and re-evaluate our regulatory approach as
appropriate. The Commission’s goals are to provide sufficient flexibility to adopt
customer protections as needed, work in a complementary fashion with the states in
protecting customers, appropriately address the need for regulatory certainty with respect
to jurisdictional transactions, and address ways to allow beneficial utility industry
investment that does not harm captive customers.15
14 When “cross-subsidization” occurs, some of the costs of dealings between
affiliated regulated and unregulated companies are borne by the regulated utility affiliate.
The costs might be passed on to captive customers through the rates of the regulated
affiliate. “Ring-fencing” employs various techniques to separate and protect the financial
assets and ratings of the regulated utility from the business risks of other members of the
holding company family, including bankruptcy of the parent or its affiliates. These
techniques could preclude some types of transactions that involve cross-subsidization.
15 As indicated below, the Commission does not propose actions on all of the
issues raised by commenters. For example, the Commission is not proposing changes to
its regulations that would require: (1) codification of specific requirements for cash
(continued)
ptcy of the parent or its affiliates. These
techniques could preclude some types of transactions that involve cross-subsidization.
15 As indicated below, the Commission does not propose actions on all of the
issues raised by commenters. For example, the Commission is not proposing changes to
its regulations that would require: (1) codification of specific requirements for cash
(continued)
Docket No. PL07-1-000
- 9 -
A.
The Commission’s Cross-Subsidization Concerns and Exhibit M
Requirements
11.
At the December 7 Technical Conference, a number of commenters asserted that a
vast majority of section 203 transactions pose no threat of cross-subsidization but
nonetheless, the Commission’s regulations require applicants to provide “an explanation,
with appropriate evidentiary support for such explanation . . . of how applicants are
providing assurance . . . that the proposed transaction will not result in, at the time of the
transaction or in the future, cross-subsidization of a non-utility associate company or
pledge or encumbrance of utility assets for the benefit of an associate company . . . .”16
management programs and money pool agreements; (2) codification of additional
information reporting requirements (through section 203 applications or through routine
reporting requirements); or (3) additional, generic actions pursuant to the Commission’s
NGA authority. Based on the types of filings made since Order Nos. 667 and 669
became effective and the comments raised at the technical conferences, we do not believe
further actions on these particular issues are warranted at this time
ng requirements (through section 203 applications or through routine
reporting requirements); or (3) additional, generic actions pursuant to the Commission’s
NGA authority. Based on the types of filings made since Order Nos. 667 and 669
became effective and the comments raised at the technical conferences, we do not believe
further actions on these particular issues are warranted at this time. Moreover, we note
that certain commenters recommended that the Commission provide a list on its website
of all jurisdictional public utilities (including qualifying facilities and exempt wholesale
generators), foreign utility companies, transmitting utilities, electric utilities, electric
utility companies, and holding companies (as those terms are defined under EPAct 2005
and PUHCA 2005) for use by market participants in their regulatory compliance
monitoring efforts and as they consider whether to acquire or hold the securities of
companies, the acquisition or holding of which might or might not be subject to FPA
section 203 or PUHCA 2005. While the Commission declines to rule on this issue in the
context of a policy statement, it will explore the feasibility of making some of this
information publicly available on its website.
16 The explanation, to be provided as Exhibit M to a section 203 application,
includes:
(i) Disclosure of existing pledges and/or encumbrances of
utility assets; and
(continued)
Docket No. PL07-1-000
- 10 -
12.
Several commenters argued that it is not clear how to provide the explanation
required under Exhibit M for transactions in which cross-subsidization is not possible, is
precluded by existing safeguards or is reduced to a very low possibility. Thus, they urged
the Commission to establish criteria to identify “safe harbors” or classes of transactions
inued)
Docket No. PL07-1-000
- 10 -
12.
Several commenters argued that it is not clear how to provide the explanation
required under Exhibit M for transactions in which cross-subsidization is not possible, is
precluded by existing safeguards or is reduced to a very low possibility. Thus, they urged
the Commission to establish criteria to identify “safe harbors” or classes of transactions
(ii) A detailed showing that the transaction will not result in:
(A) Any transfer of facilities between a traditional
public utility associate company that has captive
customers or that owns or provides transmission
service over jurisdictional transmission facilities, and
an associate company;
(B) Any new issuance of securities by a traditional
public utility associate company that has captive
customers or that owns or provides transmission
service over jurisdictional transmission facilities, for
the benefit of an associate company;
(C) Any new pledge or encumbrance of assets of a
traditional public utility associate company that has
captive customers or that owns or provides
transmission service over jurisdictional transmission
facilities, for the benefit of an associate company; or
(D) Any new affiliate contract between a non-utility
associate company and a traditional public utility
associate company that has captive customers or that
owns or provides transmission service over
jurisdictional transmission facilities, other than non-
power goods and services agreements subject to
review under sections 205 and 206 of the Federal
Power Act; or
f an associate company; or
(D) Any new affiliate contract between a non-utility
associate company and a traditional public utility
associate company that has captive customers or that
owns or provides transmission service over
jurisdictional transmission facilities, other than non-
power goods and services agreements subject to
review under sections 205 and 206 of the Federal
Power Act; or
(2) If no such assurance can be provided, an explanation of
how such cross-subsidization, pledge, or encumbrance will be
consistent with the public interest.
18 CFR 33.2(j)(1)-(2).
Docket No. PL07-1-000
- 11 -
that clearly do not raise cross-subsidization concerns. They contended that such an
approach will enhance regulatory certainty by letting parties know up front that with
these types of transactions, there is no risk of additional restrictions being imposed by the
Commission.
13.
The Commission’s focus generally has been on preventing a transfer of benefits
from a public utility’s captive customers to shareholders of the public utility’s holding
company due to an intra-system transaction that involves electric power or energy,
generation facilities, or non-power goods and services.17 Concerns arise in a number of
circumstances, including where a market-regulated affiliate (e.g., a power seller with
market-based rates) or a non-utility affiliate provides power or goods and services to a
franchised public utility with captive customers, as well as the circumstance in which the
franchised public utility with captive customers provides power or non-power goods and
services to the market-regulated or non-utility affiliate. For instance, a franchised public
utility with captive customers may purchase power from its marketing affiliate at a price
above market or sell power to its marketing affiliate at below-market prices, thus
transferring benefits from customers to shareholders of the holding company
ptive customers provides power or non-power goods and
services to the market-regulated or non-utility affiliate. For instance, a franchised public
utility with captive customers may purchase power from its marketing affiliate at a price
above market or sell power to its marketing affiliate at below-market prices, thus
transferring benefits from customers to shareholders of the holding company. Further,
customers may be harmed if the franchised public utility purchases non-power goods and
services from an affiliate at above-market prices or sells non-power goods and services to
an affiliate at less than market value and seeks to recover the overcharges or the
17 Order No. 669, FERC Stats. & Regs. ¶ 31,200 at P 147.
Docket No. PL07-1-000
- 12 -
undercharges through rates for service to captive customers.18 Concerns may also arise
with respect to intra-corporate financing transactions that may encumber franchised
public utility assets in favor of a market-regulated or non-utility affiliate. The
Commission’s regulatory concern with this particular form of cross-subsidization is with
the potential adverse impact of the internal finance transaction on the rates of a franchised
public utility with captive customers.
1.
“Safe Harbors” for Meeting Exhibit M Requirements for
Certain Transactions
14.
Since the February 2006 effective date of the FPA section 203 amendments, the
Commission has gained sufficient experience in implementing the cross-subsidization
provision of FPA section 203(a)(4) to provide policy guidance on the cross-subsidization
demonstration required by Exhibit M. As described above, there are many instances
where cross-subsidization can occur, but our focus is on the specific requirements under
section 203(a)(4) and the Order No. 669 rulemaking proceeding – inappropriate cross-
subsidization of non-utility or market-regulated affiliates or the pledge or encumbrance of
utility assets for the benefit of an associate company
tration required by Exhibit M. As described above, there are many instances
where cross-subsidization can occur, but our focus is on the specific requirements under
section 203(a)(4) and the Order No. 669 rulemaking proceeding – inappropriate cross-
subsidization of non-utility or market-regulated affiliates or the pledge or encumbrance of
utility assets for the benefit of an associate company. The concern arises in a corporate
structure that has at least one franchised public utility with captive customers and one or
18 Transactions Subject to FPA Section 203, 70 FR 58636 (Oct. 7, 2005), FERC
Stats. & Regs. ¶ 32,589, at P 47 (2005). In the concurrent Affiliate Transactions NOPR,
supra note 7, the Commission is proposing to extend the affiliate abuse restrictions to
apply to all franchised public utilities with captive customers and their market-regulated
power sales affiliates and non-utility affiliates.
Docket No. PL07-1-000
- 13 -
more non-utility affiliates or market-regulated utility affiliates (i.e., utilities regulated on
a market rather than a cost basis). These types of relationships provide opportunities for
cross-subsidization in routine transactions between affiliates in addition to more
significant transactions such as transfers of utility assets, encumbrance of utility assets,
new affiliate contracts, and issuance of securities by affiliates (that usually receive more
public scrutiny or regulatory attention).
15.
Where these affiliate relationships do not exist, that is, where a transaction
involves only market-regulated and/or non-utility affiliated entities or is a bona fide,
arm’s-length, bargained-for exchange, then the transaction is not likely to result in
inappropriate cross-subsidization and the detailed explanation and evidentiary support
required by Exhibit M may not be warranted.
16
15.
Where these affiliate relationships do not exist, that is, where a transaction
involves only market-regulated and/or non-utility affiliated entities or is a bona fide,
arm’s-length, bargained-for exchange, then the transaction is not likely to result in
inappropriate cross-subsidization and the detailed explanation and evidentiary support
required by Exhibit M may not be warranted.
16.
Accordingly, for purposes of compliance with Exhibit M, the Commission will
recognize three classes of transactions that are unlikely to raise the cross-subsidization
concerns described in the Order No. 669 rulemaking proceeding. These, in effect, are
“safe harbors” for meeting the section 203 cross-subsidization demonstration, absent
concerns identified by the Commission or evidence from interveners that there is a cross-
subsidy problem based on the particular circumstances presented.
17.
The first class of transactions includes those transactions where the applicant
shows that a franchised public utility with captive customers is not involved. If no
captive customers are involved, then there is no potential for harm to customers.
Docket No. PL07-1-000
- 14 -
Therefore, compliance with Exhibit M could be a showing that no franchised public
utility with captive customers19 is involved in the transaction.
18.
The second class of transactions includes those transactions that are subject to
review by a state commission. The Commission, in the context of specific mergers or
other corporate transactions, intends to defer to state commissions where the state adopts
or has in place ring-fencing measures to protect customers against inappropriate cross-
subsidization or the encumbrance of utility assets for the benefit of the “unregulated”
affiliates. Therefore, compliance with Exhibit M could be satisfied with a showing that
the proposed transaction complies with specific state regulatory protections against
inappropriate cross-subsidization by captive customers
in place ring-fencing measures to protect customers against inappropriate cross-
subsidization or the encumbrance of utility assets for the benefit of the “unregulated”
affiliates. Therefore, compliance with Exhibit M could be satisfied with a showing that
the proposed transaction complies with specific state regulatory protections against
inappropriate cross-subsidization by captive customers. If a state does not have the
authority to impose cross-subsidization protections, however, the transaction would not
qualify for this safe harbor.
19.
The third class of transactions are those involving only non-affiliates. Where a
franchised public utility transacts only with nonaffiliated entities, the potential for
inappropriate cross-subsidization of a non-utility associate company or the pledge or
encumbrance of utility assets for the benefit of an associate company generally is not
present. Therefore, compliance with Exhibit M could be satisfied with a showing that a
public utility transacts only with nonaffiliated entities. This category includes a transfer
19 The Commission has defined “captive customers,” for purposes of FPA section
203, to mean “any wholesale or retail electric energy customers served under cost-based
regulation.” 18 CFR 33.1(b)(5).
Docket No. PL07-1-000
- 15 -
of assets between a public utility and non-affiliates, but does not include mergers with, or
acquisitions of, public utilities.
20.
After review of a section 203 application relying on any of these “safe harbors,” if
the Commission finds that the applicant has failed to make a sufficient showing that it
meets the criteria described above, then the application will be deemed to be deficient
and a new Exhibit M will be required.
2.
Other Means of Addressing Cross-Subsidization Concerns
21
itions of, public utilities.
20.
After review of a section 203 application relying on any of these “safe harbors,” if
the Commission finds that the applicant has failed to make a sufficient showing that it
meets the criteria described above, then the application will be deemed to be deficient
and a new Exhibit M will be required.
2.
Other Means of Addressing Cross-Subsidization Concerns
21.
Intra-corporate financing transactions may raise cross-subsidization concerns if the
assets of a franchised public utility with captive customers are used to finance its market-
regulated utility affiliates or non-utility affiliates or their activities. In the December 7
Technical Conference, several commenters noted that their states had implemented ring-
fencing measures to mitigate potential risks of cross-subsidization but that many states
had not. These commenters suggested that the Commission implement safeguards to
mitigate risks in the absence of state regulation (although not necessarily on a generic
basis, relying on the states where the state has already taken such measures). Most
commenters urged the Commission to continue to review whether potential mergers
required additional protections on a case-by-case basis. Representatives of the state
commissions, including the Oregon Public Utility Commission, Wisconsin Public Service
Commission and Missouri Public Service Commission, recommended that the
Commission only act where there is a demonstrable gap in state authority. None
supported adoption of federal, mandatory ring-fencing conditions. Some commenters did
nal protections on a case-by-case basis. Representatives of the state
commissions, including the Oregon Public Utility Commission, Wisconsin Public Service
Commission and Missouri Public Service Commission, recommended that the
Commission only act where there is a demonstrable gap in state authority. None
supported adoption of federal, mandatory ring-fencing conditions. Some commenters did
Docket No. PL07-1-000
- 16 -
not oppose the establishment of guidelines on the kinds of protections that might be
appropriate in different cases.20
22.
American Public Power Association and the National Rural Electric Cooperative
Association argued that the Commission adopt regulations with minimum cross-
subsidization safeguards that would apply in all cases, and also provide an exhaustive
menu of additional cross-subsidization safeguards, including ring-fencing measures, that
applicants might propose or that the Commission might impose in appropriate cases.
They proposed that the Commission codify its code of conduct requirements in the
regulations and that these restrictions be made applicable to all traditional public utilities
and their unregulated affiliates.
23.
The Commission agrees that it is appropriate to codify in our regulations code of
conduct affiliate restrictions to prevent cross-subsidization involving power and non-
power goods and services transactions and to make those prophylactic restrictions
applicable to all traditional (franchised) public utilities (not just public utilities seeking
section 203 approval) and their transactions with power sellers as well as non-utility
affiliates. Accordingly, contemporaneous with this Policy Statement, we are instituting a
Notice of Proposed Rulemaking to do this. However, with respect to additional
restrictions that may be appropriate for section 203 applicants, such as ring-fencing
20 See, e.g., Comments of Clifford M. Naeve, December 7 Technical Conference,
Tr
non-utility
affiliates. Accordingly, contemporaneous with this Policy Statement, we are instituting a
Notice of Proposed Rulemaking to do this. However, with respect to additional
restrictions that may be appropriate for section 203 applicants, such as ring-fencing
20 See, e.g., Comments of Clifford M. Naeve, December 7 Technical Conference,
Tr. 91-92; Comments of Joseph G. Sauvage, December 7 Technical Conference, Tr. 56-
58.
Docket No. PL07-1-000
- 17 -
restrictions, the Commission does not believe it is necessary or appropriate to mandate
generic one-size-fits-all protections for all section 203 applicants. Rather, the
Commission will examine the facts and circumstances of each transaction and determine
on a case-by-case basis whether additional protections against inappropriate cross-
subsidization or encumbrances of utility assets are necessary. As noted above, part of our
approach will involve review of whether state commissions have authority to impose
cross-subsidy protections or have in place such protections. The Commission, as a
general matter, intends to defer to state-adopted protections unless they can be shown to
be inadequate to protect wholesale customers. This deference is appropriate because
retail customers typically represent the vast majority of load served by a franchised
public utility, and ring-fencing measures typically affect the entire corporation, thereby
protecting both retail and wholesale customers. If it can be shown, however, that these
measures are inadequate to protect wholesale customers in a given case, the Commission
may adopt supplemental protections as appropriate
customers typically represent the vast majority of load served by a franchised
public utility, and ring-fencing measures typically affect the entire corporation, thereby
protecting both retail and wholesale customers. If it can be shown, however, that these
measures are inadequate to protect wholesale customers in a given case, the Commission
may adopt supplemental protections as appropriate. Finally, we emphasize that,
consistent with section 203 and the Commission’s regulations, all section 203 applicants
must demonstrate that a proposed transaction will not result in inappropriate cross-
subsidization of non-utility associate companies or the inappropriate pledge or
encumbrance of utility assets for the benefit of an associate company, either through
meeting one of the safe harbor demonstrations, proposing its own ring-fencing or other
protections to prevent cross-subsidization, or demonstrating that there are no potential
cross-subsidy issues associated with the proposed transaction.
Docket No. PL07-1-000
- 18 -
24.
With respect to guidance to applicants that do not make the “safe harbor”
demonstration or do not demonstrate that cross-subsidy issues are not present, one way to
make the demonstration required by Exhibit M would be to propose ring-fencing
measures. For example, a ring-fencing structure related to internal corporate financings,
i.e., money pool or cash management transactions, could include some or all of the
following elements depending on the circumstances: (1) the holding company
participates in the money pool as a lender only and it does not borrow from the
subsidiaries with captive customers; (2) where the holding company system includes
more than one public utility, the money pool for subsidiaries with captive customers is
separate from the money pool for all other subsidiaries; (3) all money pool transactions
are short-term (one year or less), and payable on demand to the public utility; (4) the
interest rate formula is set according to a known index and rec
th captive customers; (2) where the holding company system includes
more than one public utility, the money pool for subsidiaries with captive customers is
separate from the money pool for all other subsidiaries; (3) all money pool transactions
are short-term (one year or less), and payable on demand to the public utility; (4) the
interest rate formula is set according to a known index and recognizes that internal and
external funds may be loaned into the money pool; (5) loan transactions are made pro rata
from those offering funds on the date of the transactions; (6) the formula for distributing
interest income realized from the money pool to money pool members is publicly
disclosed; and (7) the money pool administrator is required to maintain records of daily
money pool transactions for examination by the Commission by transaction date, lender,
borrower, amount, and interest rate(s).21 We clarify that the forms of ring-fencing
21 These ring-fencing measures are among those requirements typically approved
by the Securities and Exchange Commission (SEC) and/or adopted by state commissions.
Docket No. PL07-1-000
- 19 -
protections listed herein are simply examples of protections that the Commission would
consider in evaluating proposed ring-fencing measures. Appropriate ring-fencing
measures will depend on the facts presented and the specifics of an applicant’s corporate
structure and must be evaluated on a case-by-case basis. Further, as noted earlier, to the
extent a state commission imposes specific ring-fencing measures, the Commission will
defer to those measures absent evidence that additional measures are needed to protect
wholesale customers.
25.
The Commission also notes that if it approves a transaction under section 203
(with or without ring-fencing measures), the Commission retains authority under section
203(b) to later impose additional cross-subsidy protections or modify any previously
approved measures
mission will
defer to those measures absent evidence that additional measures are needed to protect
wholesale customers.
25.
The Commission also notes that if it approves a transaction under section 203
(with or without ring-fencing measures), the Commission retains authority under section
203(b) to later impose additional cross-subsidy protections or modify any previously
approved measures. Further, irrespective of any link to the section 203 transaction, the
Commission retains ongoing authority under section 206 of the FPA22 to modify rates,
contracts and practices that may result in inappropriate cross-subsidization or
encumbrances of utility assets (and, if appropriate, to require new practices).
3.
Future Case-Specific Informational Filings
26.
Given that the Commission often issues its order in a section 203 proceeding
before the state proceedings are completed, the Commission may grant authorization
under section 203 before the relevant state commission issues an order specifying any
state-required cross-subsidy or ring fencing protections. In such circumstances, as
22 16 U.S.C. 824e.
Docket No. PL07-1-000
- 20 -
appropriate, the Commission in the context of individual section 203 authorizations will
require applicants to file with the Commission a copy of any subsequent state orders.
Such copy would be filed in the Commission’s section 203 proceeding docket as an
informational filing, and the applicant would also provide copies to the intervenors in the
Commission’s section 203 proceedings.
B.
Blanket Authorizations Under Sections 203(a)(1) and 203(a)(2) and
Clarifications Regarding Jurisdictional Transactions
27.
Through the Order No. 669 rulemaking proceeding, the Commission granted
certain blanket authorizations on a generic basis under section 203.23 Participants at the
December 7 Technical Conference addressed whether additional blanket authorizations
were warranted
gs.
B.
Blanket Authorizations Under Sections 203(a)(1) and 203(a)(2) and
Clarifications Regarding Jurisdictional Transactions
27.
Through the Order No. 669 rulemaking proceeding, the Commission granted
certain blanket authorizations on a generic basis under section 203.23 Participants at the
December 7 Technical Conference addressed whether additional blanket authorizations
were warranted. Specifically, commenters discussed under what circumstances the
Commission should grant a blanket authorization under section 203(a)(1) (which applies
to public utilities’ dispositions of jurisdictional facilities) to parallel the Order No. 669
blanket authorizations under section 203(a)(2) (which, among other things, applies to
holding companies’ acquisitions of securities of public utilities with jurisdictional
facilities). The section 203 blanket authorizations under Order No. 669 allow a holding
company to acquire the voting securities of a transmitting utility, an electric utility
company, or a holding company in a holding company system that includes a transmitting
utility or an electric utility company, if, after the acquisition, the holding company will
23 18 CFR 33.1(c).
Docket No. PL07-1-000
- 21 -
own less than 10 percent of the outstanding voting securities. What most commenters
seek is a parallel blanket authorization under section 203(a)(1) for the public utilities in
such transactions to “dispose” of their facilities to the holding company, i.e., a blanket
authorization for transactions that (1) involve or permit transfers (dispositions) of up to
10 percent of a public utility’s voting stock, or (2) involve a transfer of up to 10 percent
of the voting stock of a holding company that directly or indirectly owns or controls a
public utility. Alternatively, they seek clarification that certain transactions are not
jurisdictional.
28
., a blanket
authorization for transactions that (1) involve or permit transfers (dispositions) of up to
10 percent of a public utility’s voting stock, or (2) involve a transfer of up to 10 percent
of the voting stock of a holding company that directly or indirectly owns or controls a
public utility. Alternatively, they seek clarification that certain transactions are not
jurisdictional.
28.
Several commenters supported modification of the rules to grant such a parallel
blanket authorization under 203(a)(1). In addition, Mirant Corporation (Mirant) argued
that section 203(a)(1) should not apply at all to stock transactions in the secondary market
involving the corporate parent. Mirant maintained that if the Commission continues to
apply section 203(a)(1) to equity transfers of upstream ownership interests in public
utilities that result in either a direct or indirect change in control over the underlying
public utility, there would be a substantial and unnecessary overlap between sections
203(a)(1) and 203(a)(2). The Goldman Sachs Group, Inc. (Goldman) added that financial
investors need certainty on whether particular transactions in the secondary market would
require prior Commission approval under section 203(a)(1). Goldman also argued for a
blanket authorization under section 203(a)(2) for the acquisition of voting securities by
firms acting in a fiduciary capacity.
Docket No. PL07-1-000
- 22 -
29.
Edison Electric Institute (EEI) argued for a blanket authorization for internal
corporate reorganizations under both sections 203(a)(1) and 203(a)(2) for transfer of
assets from one non-traditional utility subsidiary, such as an exempt wholesale generator,
to another non-traditional utility subsidiary.
30.
The Financial Institutions Energy Group (FIEG)24 requested that the Commission
clarify that transactions that do not affect control do not, in fact, require approval under
section 203(a)(1)
ns under both sections 203(a)(1) and 203(a)(2) for transfer of
assets from one non-traditional utility subsidiary, such as an exempt wholesale generator,
to another non-traditional utility subsidiary.
30.
The Financial Institutions Energy Group (FIEG)24 requested that the Commission
clarify that transactions that do not affect control do not, in fact, require approval under
section 203(a)(1). Alternatively, FIEG argued that there are several types of transactions
under which no change of control is involved and, therefore, the Commission should
provide blanket authorizations under both section 203(a)(1) and section 203(a)(2). FIEG
asserted that such transactions include: (1) acquisitions of voting securities that would
give the acquiring entity less than 10 percent ownership of outstanding voting securities;
(2) acquisitions of up to 20 percent of the voting interests in a public utility where the
acquirer is eligible to file with the SEC a Schedule 13G demonstrating no intent to
exercise control over the entity whose securities are being acquired; (3) acquisitions
involving securities held for lending, hedging, underwriting and/or fiduciary purposes.
FIEG also argued that a blanket authorization should be granted for transactions in which
24 Members of FIEG include: Bank of America, N.A, Barclays Bank PLC, Bear
Energy LP, Citigroup Energy Inc., Credit Suisse Energy LLC (a subsidiary of Credit
Suisse), Deutche Bank AG, J. Aron & Company (a subsidiary of The Goldman Sachs
Group), JPMorgan Chase & Co., Lehman Brothers Commodity Services Inc. (a
subsidiary of Lehman Brothers Holding Inc.), Merrill Lynch Commodities, Inc., Morgan
Stanley Capital Group Inc., Société Générale, and UBS Energy LLC (a subsidiary of
UBS AG).
roup Energy Inc., Credit Suisse Energy LLC (a subsidiary of Credit
Suisse), Deutche Bank AG, J. Aron & Company (a subsidiary of The Goldman Sachs
Group), JPMorgan Chase & Co., Lehman Brothers Commodity Services Inc. (a
subsidiary of Lehman Brothers Holding Inc.), Merrill Lynch Commodities, Inc., Morgan
Stanley Capital Group Inc., Société Générale, and UBS Energy LLC (a subsidiary of
UBS AG).
Docket No. PL07-1-000
- 23 -
a public utility or a holding company is acquiring or assigning a jurisdictional contract
where the acquirer does not have captive customers and the contract does not convey
control over the operation of a generation or transmission facility.
31.
In support of its requests for clarification and expanded blanket authorizations,
FIEG states that shares and other interests in public utilities are bought, sold and traded
on a regular basis and that an active market for a public utility’s shares is important to its
ability to raise capital. FIEG explains that if a passive or non-controlling investor must
seek prior Commission approval for transactions, the trading process is slowed, resulting
in a less efficient market for the company’s shares. According to FIEG, such
inefficiencies chill participation in the industry and reduce needed market liquidity.
32.
Several commenters also urged the Commission to provide greater clarity on what
constitutes a passive investment for which no Commission authorization is required
under section 203(a)(1).
33.
The Commission agrees that greater industry investment and market liquidity are
important goals. However, blanket authorizations under section 203 cannot be granted
lightly, particularly generic authorizations
commenters also urged the Commission to provide greater clarity on what
constitutes a passive investment for which no Commission authorization is required
under section 203(a)(1).
33.
The Commission agrees that greater industry investment and market liquidity are
important goals. However, blanket authorizations under section 203 cannot be granted
lightly, particularly generic authorizations. Because it is an ex ante determination as to
the appropriateness of a category of transactions under section 203 and a counterparty is
not yet identified, a blanket authorization can be granted only when the Commission can
be assured that the statutory standards will be met, including ensuring that the interests of
captive customers are safeguarded and that public utility assets are protected under all
Docket No. PL07-1-000
- 24 -
circumstances. It is under this paradigm that we provide the following guidance with
respect to the section 203 blanket authorizations.
34.
First, we will grant in part and deny in part requests for blanket authorizations
under section 203(a)(1) to parallel those previously granted under section 203(a)(2). The
Commission recognizes that, in some circumstances, the lack of a blanket authorization
under section 203(a)(1) can lessen the practical effectiveness of the blanket
authorizations previously granted under section 203(a)(2). Accordingly, in a Notice of
Proposed Rulemaking issued contemporaneous with this Policy Statement, the
Commission is proposing a limited blanket authorization under section 203(a)(1) under
which a public utility would be “pre-authorized” to dispose of less than 10 percent of its
securities to a public utility holding company but only if, after the disposition, the holding
company and any associate or affiliated company in aggregate will own less than 10
percent of that public utility.25 The Commission believes that this narrow blanket
authorization will provide appropriate relief to investors and at the same time ensure that
utility ass
f less than 10 percent of its
securities to a public utility holding company but only if, after the disposition, the holding
company and any associate or affiliated company in aggregate will own less than 10
percent of that public utility.25 The Commission believes that this narrow blanket
authorization will provide appropriate relief to investors and at the same time ensure that
utility assets and captive customers are protected.
35.
The Commission will continue to consider broader requests for blanket
authorizations under section 203(a)(1) on a case-specific basis,26 taking into account all
25 Blanket Authorization NOPR, supra note 6.
26 Order No. 669-A, FERC Stats. & Regs. ¶ 31,214 at P 103; Order No. 669-B,
FERC Stats. & Regs. ¶ 31,225 at P 43.
Docket No. PL07-1-000
- 25 -
other authorizations that have been granted and whether those authorizations, in
conjunction with a blanket authorization under section 203(a)(1), would raise concerns.
While the Commission, as discussed above, has determined that additional generic
blanket authorizations for public utilities’ dispositions of jurisdictional assets are not
warranted at this time (other than the blanket authorizations discussed in the
accompanying NOPR), we expect that in many circumstances individual blanket
authorizations can be granted. Such an individual, situation-specific, ex ante blanket
authorization will provide some of the certainty that is sought by the industry and
investors. At the same time, this approach will allow the Commission to assess specific
circumstances, to place time limits on blanket authorizations if appropriate (subject to
possible renewal), to monitor industry activity, and to adapt the use of blanket
authorizations over time as we gain further experience with financial institution
investments in particular
s sought by the industry and
investors. At the same time, this approach will allow the Commission to assess specific
circumstances, to place time limits on blanket authorizations if appropriate (subject to
possible renewal), to monitor industry activity, and to adapt the use of blanket
authorizations over time as we gain further experience with financial institution
investments in particular. Further, we do not rule out the possibility that groups of
similarly situated holding companies, such as financial institutions, can make joint filings
seeking common blanket authorizations under section 203(a)(1) or section 203(a)(2);
however, they would need to clearly demonstrate on the record that there would be no
adverse impact on captive customers or the public interest if the authorizations were
granted.
36.
In response to requests that the Commission clarify that secondary market
transactions involving public utilities do not require approval under section 203(a)(1)(A)
(which provides that a public utility may not sell, lease “or otherwise dispose” of the
Docket No. PL07-1-000
- 26 -
whole of its jurisdictional facilities or any part hereof without prior Commission
approval), we so clarify. Secondary market transactions, for purposes of this discussion,
are purchases or sales of the securities of a public utility or its upstream holding company
by a third-party investor. Thus, such transactions do not include the securities’ initial
issuance or reacquisition by the issuer. Thousands of shares of the stock of a public
utility or public utility holding company may be traded on a daily basis by non-public
utility third parties, particularly if the stock is widely held and publicly traded
public utility or its upstream holding company
by a third-party investor. Thus, such transactions do not include the securities’ initial
issuance or reacquisition by the issuer. Thousands of shares of the stock of a public
utility or public utility holding company may be traded on a daily basis by non-public
utility third parties, particularly if the stock is widely held and publicly traded. As noted
by Mirant, EEI and members of FIEG in their comments, neither a public utility holding
company nor a public utility subsidiary of the holding company are themselves parties to
these transactions and they cannot know in advance what trading will occur or whether
direct or indirect “control” over the public utility is being acquired. It would be virtually
impossible in such circumstances for the public utility or holding company to know what
is occurring before the fact and we do not interpret section 203(a)(1)(A) to be triggered
for these secondary trades. Accordingly, neither public utilities nor public utility holding
companies have an obligation to seek approval of a “disposition” of public utility
jurisdictional facilities for such trades.27
27 If the acquirer of securities in the secondary market is a public utility holding
company, however, it may have an obligation to file for approval under section 203(a)(2).
If the acquirer is another public utility, it may also have to file under section 203(a)(1)(C)
(no public utility may purchase securities of another public utility if over $10 million in
value).
27 If the acquirer of securities in the secondary market is a public utility holding
company, however, it may have an obligation to file for approval under section 203(a)(2).
If the acquirer is another public utility, it may also have to file under section 203(a)(1)(C)
(no public utility may purchase securities of another public utility if over $10 million in
value).
Docket No. PL07-1-000
- 27 -
37.
In addition, we clarify that transactions that do not transfer control of a public
utility do not fall within the “or otherwise dispose” language of section 203(a)(1)(A) and
thus do not require approval under section 203(a)(1)(A) (assuming there is no sale or
lease of the facilities). As indicated in our discussion of what constitutes a disposition of
control for purposes of the Commission’s section 203 analysis,28 while the Commission
cannot make an ex ante determination regarding what is control for purposes of the
Commission’s section 203 analysis absent facts of a specific case, the Commission is
setting forth herein certain guidelines regarding what has been deemed to be (or not to
be) control. This clarification addresses many of the concerns raised by commenters
regarding acquisitions involving securities held for lending, hedging, underwriting and/or
fiduciary purposes. If such transactions do not result in a transfer of control and there is
no sale or lease of the facilities taking place, then section 203(a)(1)(A) is not triggered.
This should assist applicants in determining the need for prior authorization under section
203.
38.
With respect to the request for a generic blanket authorization for internal
corporate reorganizations under both sections 203(a)(1) and 203(a)(2) for the transfer of
assets from one non-traditional utility subsidiary29 to another non-traditional utility
28 See infra section II.C.
29 For example, power marketers, exempt wholesale generators, or qualifying
facilities.
quest for a generic blanket authorization for internal
corporate reorganizations under both sections 203(a)(1) and 203(a)(2) for the transfer of
assets from one non-traditional utility subsidiary29 to another non-traditional utility
28 See infra section II.C.
29 For example, power marketers, exempt wholesale generators, or qualifying
facilities.
Docket No. PL07-1-000
- 28 -
subsidiary, the Commission cannot be certain of the impact of such transactions on utility
affiliates on a generic basis and, therefore, will not grant a blanket authorization at this
time. The Commission will consider case-specific blanket authorizations (with
appropriate reporting requirements) on a case-by-case basis.
39.
The Commission also denies the request for a generic blanket authorization under
section 203(a)(2) for non-bank fiduciaries subject to the jurisdiction of the SEC. The
Commission finds that we need further experience in this area before granting a blanket
authorization on a generic basis. However, the Commission is willing to consider such
requests on a holding company-specific basis or from similarly situated holding
companies, such as similarly situated financial institutions. Any such applications would
need to demonstrate in sufficient detail that applicants would not be able to control public
utilities and that there would be no adverse impact on captive customers or the public
interest if the authorizations were granted. As discussed above with respect to section
203(a)(1) authorizations, this type of approach would allow the Commission to assess
specific circumstances, to place time limits on blanket authorizations if appropriate
(subject to possible renewal), to monitor industry activity, and to adapt the use of blanket
authorizations over time as we gain further experience.
40
authorizations were granted. As discussed above with respect to section
203(a)(1) authorizations, this type of approach would allow the Commission to assess
specific circumstances, to place time limits on blanket authorizations if appropriate
(subject to possible renewal), to monitor industry activity, and to adapt the use of blanket
authorizations over time as we gain further experience.
40.
Certain participants to the technical conferences argue that a blanket authorization
under section 203(a)(1) should be granted for transactions in which a public utility or a
holding company is acquiring or disposing of a jurisdictional contract where the acquirer
does not have captive customers and the contract does not convey control over the
Docket No. PL07-1-000
- 29 -
operation of a generation or transmission facility. These commenters argue that because
acquisition of these contracts cannot create competitive or rate concerns, the Commission
should grant blanket authorization under section 203(a)(1) for such transactions. Because
the specific request for blanket authorization may present concerns where the transferor
has captive customers, we seek comment in the Blanket Authorization NOPR on whether
a generic blanket authorization under section 203(a)(1) is warranted for the acquisition or
disposition of a jurisdictional contract where neither the acquirer nor transferor has
captive customers and the contract does not convey control over the operation of a
generation or transmission facility.
41.
We also decline to grant a generic blanket authorization under sections 203(a)(1)
and 203(a)(2) for acquisitions of up to 20 percent of the voting interests in a public utility
where the acquirer is eligible to file with the SEC a Schedule 13G, which demonstrates
no intent to exercise control over the entity whose securities are being acquired
on of a
generation or transmission facility.
41.
We also decline to grant a generic blanket authorization under sections 203(a)(1)
and 203(a)(2) for acquisitions of up to 20 percent of the voting interests in a public utility
where the acquirer is eligible to file with the SEC a Schedule 13G, which demonstrates
no intent to exercise control over the entity whose securities are being acquired. While
the Commission may consider eligibility to file a Schedule 13G with the SEC as part of
an indication that an entity will not be able to assert control over a public utility, the
Commission will not accept Schedule 13G eligibility as a definitive statement regarding
control. The Commission will consider Schedule 13G eligibility as one factor in the
analysis of whether an entity can assert control over a public utility.30
30 See, e.g., Capital Research and Management Company, 116 FERC ¶ 61,267
(2006).
Docket No. PL07-1-000
- 30 -
C.
Disposition of “Control” of Jurisdictional Facilities
42.
Several commenters have asked the Commission to provide guidance on what
constitutes a disposition of “control” of jurisdictional facilities under section 203. Most
recently, this request is being pressed by the investment community, which seeks further
clarification regarding the scope of the Commission’s regulatory authority, and greater
regulatory certainty as to when section 203 review is required.
43.
We will provide guidance here, but emphasize that the determination of whether
there is a disposition of control must be based on all circumstances. In other words, the
decision must be made on a fact-specific basis. As discussed further below, while our
case law under section 201 provides guidance on the factors that may result in control, no
single factor or factors necessarily results in control
provide guidance here, but emphasize that the determination of whether
there is a disposition of control must be based on all circumstances. In other words, the
decision must be made on a fact-specific basis. As discussed further below, while our
case law under section 201 provides guidance on the factors that may result in control, no
single factor or factors necessarily results in control. The electric industry remains a
dynamic, developing industry, and no bright-line standard will encompass all relevant
factors and possibilities that may occur now or in the future.31
44.
We note that much of the Commission’s precedent in this area was developed
based on concerns that there could be a jurisdictional void if the Commission did not
interpret broadly what constitutes a disposition of “control” of public utility facilities
under FPA section 203. The Commission was particularly concerned about the creation
of holding companies and holding company acquisitions that could result in an indirect
31 Market-Based Rates For Wholesale Sales Of Electric Energy, Capacity And
Ancillary Services By Public Utilities, Order No. 697, 72 FR 39903 (July 20, 2007),
FERC Stats. & Regs. ¶ 31,252, at P 174 (2007) (Market-Based Rate Final Rule).
Docket No. PL07-1-000
- 31 -
change of control of the jurisdictional facilities of public utilities, without Commission
review. In EPAct 2005, however, Congress has filled any jurisdictional void involving
public utility holding companies by amending section 203 to specifically give the
Commission authority over certain holding company acquisitions and mergers involving
FPA public utilities. Thus, the Commission’s pre-EPAct 2005 precedent should be read
with this context in mind.
1.
Precedent Discussing Dispositions of Control
45.
Section 203 requires prior Commission approval if a public utility seeks to sell,
lease, or otherwise dispose of jurisdictional facilities
the
Commission authority over certain holding company acquisitions and mergers involving
FPA public utilities. Thus, the Commission’s pre-EPAct 2005 precedent should be read
with this context in mind.
1.
Precedent Discussing Dispositions of Control
45.
Section 203 requires prior Commission approval if a public utility seeks to sell,
lease, or otherwise dispose of jurisdictional facilities. As previously noted, the
Commission has interpreted the “or otherwise dispose” language of section 203(a)(1) to
include transfers of “control” of jurisdictional facilities. Additionally, prior Commission
approval is required for any public utility that seeks to directly or indirectly merge or
consolidate the whole of its jurisdictional facilities, or any part thereof, with the facilities
of another person, “by any means whatsoever.”32 As interpreted by the Commission, the
requirement to obtain the Commission’s approval under the “merge or consolidate”
clause depends on whether the public utility’s facilities are subject to the jurisdiction of
32 While the section 203(a)(1) requirements for obtaining Commission
authorization do not use the word “control” in the statutory text, section 203(a)(4)
provides that the Commission must approve a proposed “disposition, consolidation,
acquisition, or change in control” (emphasis added) if the statutory criteria are met.
to the jurisdiction of
32 While the section 203(a)(1) requirements for obtaining Commission
authorization do not use the word “control” in the statutory text, section 203(a)(4)
provides that the Commission must approve a proposed “disposition, consolidation,
acquisition, or change in control” (emphasis added) if the statutory criteria are met.
Docket No. PL07-1-000
- 32 -
the Commission and whether the transaction directly or indirectly would result in a
change of “control” of the facilities.33
46.
In Enova Corporation, the Commission explained that the purpose of section 203
is to provide a mechanism for maintaining oversight of the facilities of public utilities and
to prevent transfers of control over those facilities that would harm consumers or that
would inhibit the Commission’s ability to secure the maintenance of adequate service and
the coordination in the public interest of jurisdictional facilities.34 The Commission
determined that it cannot definitively identify every combination of entities or disposition
of assets that may trigger jurisdiction under section 203, since it cannot anticipate every
type of restructuring that might occur. The Commission stressed that its concern was
with changes in control, including direct or indirect mergers that affect jurisdictional
facilities. It said that it must be flexible in responding to industry restructuring if it is to
discharge its statutory responsibility “to secure the maintenance of adequate service and
the coordination in the public interest of facilities subject to the jurisdiction of the
Commission.”35
47.
Noting in Enova that the FPA did not provide definitions for the terms “dispose”
or “control,” the Commission stated that those terms should not be read narrowly because
33 PDI Stoneman, Inc., 104 FERC ¶ 61,270, at P 13 (2003) (PDI Stoneman)
he coordination in the public interest of facilities subject to the jurisdiction of the
Commission.”35
47.
Noting in Enova that the FPA did not provide definitions for the terms “dispose”
or “control,” the Commission stated that those terms should not be read narrowly because
33 PDI Stoneman, Inc., 104 FERC ¶ 61,270, at P 13 (2003) (PDI Stoneman).
34 Enova Corporation, 79 FERC ¶ 61,107, at 61,489 (1997) (Enova) (citing pre-
EPAct 2005 section 203(b)).
35 Id. at 61,496.
Docket No. PL07-1-000
- 33 -
to do so would result in a jurisdictional void in which certain types of corporate
transactions could escape Commission oversight. While section 203 applies to changes
or transfers in the proprietary interests of a public utility,36 not all transactions under
section 203 involve a change in control of a public utility. If no change in control results
from the transaction, it is not likely to adversely affect competition, rates or regulation, or
result in cross-subsidization.
48.
Our guidance concerning what constitutes a disposition of control of jurisdictional
facilities for purposes of section 203 requires a discussion of what constitutes control of a
public utility since a public utility is a person that owns or operates jurisdictional
facilities. In Enova, the Commission cited the definition of control that has been in its
accounting regulations since 1937
48.
Our guidance concerning what constitutes a disposition of control of jurisdictional
facilities for purposes of section 203 requires a discussion of what constitutes control of a
public utility since a public utility is a person that owns or operates jurisdictional
facilities. In Enova, the Commission cited the definition of control that has been in its
accounting regulations since 1937. Under that definition, control means:
the possession, directly or indirectly, of the power to direct or
cause the direction of management and policies of a
company, whether such power is exercised through one or
more intermediary companies, or alone, or in conjunction
with, or pursuant to an agreement, and whether such power is
established through a majority or minority ownership or
voting of securities, common directors, officers, or
stockholders, voting trusts, holding trusts, associated
companies, contract or any other direct or indirect means.37
36 See Atlantic City Electric Company v. FERC, 295 F.3d 1, 12 (D.C. Cir. 2002).
37 Enova, 79 FERC at 61,492 (citing 18 CFR Part 101, Definitions 5.B). This
definition is identical to that found in the current regulations. In addition, for purposes of
its Standards of Conduct for Transmission Providers, the Commission states that
“control” “includes, but is not limited to, the possession, directly or indirectly and
(continued)
v. FERC, 295 F.3d 1, 12 (D.C. Cir. 2002).
37 Enova, 79 FERC at 61,492 (citing 18 CFR Part 101, Definitions 5.B). This
definition is identical to that found in the current regulations. In addition, for purposes of
its Standards of Conduct for Transmission Providers, the Commission states that
“control” “includes, but is not limited to, the possession, directly or indirectly and
(continued)
Docket No. PL07-1-000
- 34 -
49.
The Commission has also discussed certain elements of control in cases
concerning whether an entity is a public utility under section 201.38 In those cases, the
Commission linked “decision-making” and “dominion and control” in determining
whether an entity is a “public utility.” The Commission also noted that the reference to
“operates [jurisdictional] facilities” in the definition of public utility in section 201(e) of
the FPA refers “to the person who has control and decision-making authority concerning
the operation of facilities.”39
50.
In a case in which the Commission disclaimed jurisdiction under section 201(e)
over financial institutions that took title to facilities as part of a leveraged lease
transaction, the Commission based its decision that the lessor/owner was not a public
utility under section 201 on the following factors (which it found in a previous but
analogous situation): (1) the financial institutions that held legal title were not operating
whether acting alone or in conjunction with others, of the authority to direct or cause the
direction of the management or policies of a company.” 18 CFR 358.3(c).
38 Section 201(b)(1) describes the activities that are subject to the jurisdiction of
the Commission: “ . . . the transmission of electric energy in interstate commerce and . . .
the sale of electric energy at wholesale in interstate commerce .
alone or in conjunction with others, of the authority to direct or cause the
direction of the management or policies of a company.” 18 CFR 358.3(c).
38 Section 201(b)(1) describes the activities that are subject to the jurisdiction of
the Commission: “ . . . the transmission of electric energy in interstate commerce and . . .
the sale of electric energy at wholesale in interstate commerce . . .” The section further
describes the facilities that are jurisdictional: “The Commission shall have jurisdiction
over all facilities for such transmission or sale of electric energy, . . .” with certain
exceptions not relevant here. In section 201(e), the term “public utility” is defined as
“any person who owns or operates facilities subject to the jurisdiction of the Commission
under this Part (other than facilities subject to such jurisdiction solely by reason of
[certain specified FPA sections]).” 16 U.S.C. 824, amended by EPAct 2005, Pub. L. No.
109-58, 1295.
39 Enova, 79 FERC at 61,492 (citing Bechtel Power Corp., 60 FERC ¶ 61,156
(1992) (Bechtel Power)).
Docket No. PL07-1-000
- 35 -
the facilities; (2) none of the parties taking title to the facilities were in the business of
producing or selling electric power; and (3) all had a principal business other than that of
a public utility.40 As part of its finding that the lessor/owner did not operate the facility,
the Commission interpreted the word “operates” as referring to the person who has
control and decision-making authority concerning the operation of the facility, i.e., not a
person who merely performs specific services that are ordered and directed by another
party.
51.
We note that “control” has been found even where that control is not absolute or
unfettered. In a case involving a complex holding company corporate structure, the
Commission deemed an investment adviser subsidiary to be a public utility because of its
participation in wholesale transactions
a
person who merely performs specific services that are ordered and directed by another
party.
51.
We note that “control” has been found even where that control is not absolute or
unfettered. In a case involving a complex holding company corporate structure, the
Commission deemed an investment adviser subsidiary to be a public utility because of its
participation in wholesale transactions. The Commission found that the investment
adviser had control over the wholesale contracts to be executed under the power
marketer’s market-based rate schedule because the combination of the following three
factors translated into control: (1) the sole discretion to enter into contracts; (2) the
exclusive ownership of the intellectual property on which contracts will be based; and (3)
the intention that the investment adviser will recommend the contracts into which the
power marketer subsidiary would enter.41
40 Bechtel Power, 60 FERC at 61,572 (citing Pacific Power & Light Co., 3 FERC
¶ 61,119 (1978); Public Service Company of New Mexico, 29 FERC ¶ 61,387 (1984);
United Illuminating Company, 29 FERC ¶ 61,270 (1984)).
41 D.E. Shaw Plasma Power, L.L.C., 102 FERC ¶ 61,265, at P 33 (2003) (Shaw).
Docket No. PL07-1-000
- 36 -
52.
The Commission cited its decisions in Bechtel and Shaw as providing guidance on
whether a nominal manager of a generating company actually exercised sufficient control
to be deemed the operator and, hence, a public utility.42 Based in part on those cases, in
Beck, the Commission found that a manager was a controlling entity where he:
(1) effectively governed the physical operation of the jurisdictional facility; and
d Shaw as providing guidance on
whether a nominal manager of a generating company actually exercised sufficient control
to be deemed the operator and, hence, a public utility.42 Based in part on those cases, in
Beck, the Commission found that a manager was a controlling entity where he:
(1) effectively governed the physical operation of the jurisdictional facility; and
(2) effectively served as the decision-maker in the sales of wholesale power. While the
application in that case described a series of companies, at least five contracts (all of
which either directly affected or were negotiated by the manager), and a trustee in
addition to the manager, the Commission concluded that the manager was the controlling
entity because he had the substantive decision-making authority regarding the
jurisdictional assets, the market-based rate tariff and a full requirements purchase
agreement. The Commission made this finding even though some of the manager’s
actions were subject to the approval of the trustee in certain circumstances, e.g., if the
transaction exceeded $1 million in value.
53.
More recently, in the Market-Based Rate Final Rule, in providing guidance on
what contractual arrangements convey control over a public utility, we explained that we
will consider the totality of circumstances and attach the presumption of control when an
entity can affect the ability of capacity to reach the market. We further explained that our
guiding principle is that an entity controls the facilities of another when it controls the
42 R.W. Beck Plant Management, Ltd., 109 FERC ¶ 61,315 (2004) (Beck).
we
will consider the totality of circumstances and attach the presumption of control when an
entity can affect the ability of capacity to reach the market. We further explained that our
guiding principle is that an entity controls the facilities of another when it controls the
42 R.W. Beck Plant Management, Ltd., 109 FERC ¶ 61,315 (2004) (Beck).
Docket No. PL07-1-000
- 37 -
decision-making over sales of electric energy, including discretion as to how and when
power generated by these facilities will be sold.43
54.
Investments in public utilities that do not convey control may in some cases be
considered to be passive investments not subject to section 203(a)(1)(A) (unless there is a
sale or lease of the facilities). The Commission has found an investment to be passive if,
among other things, (1) the acquired interest does not give the acquiring entity authority
to manage, direct or control the day-to-day wholesale power sales activities, or the
transmission in interstate commerce activities, of the jurisdictional entity;44 and (2) the
acquired interest gives the acquiring entity only limited rights (e.g., veto and/or consent
rights necessary to protect its economic investment interests, where those rights will not
affect the ability of the jurisdictional public utility to conduct jurisdictional activities);45
and (3) the acquiring entity has a principal business other than that of producing, selling,
or transmitting electric power.46
55.
We emphasize that the circumstances that convey control in section 203 analysis
vary depending on a variety of factors, including the transaction structure, the nature of
voting rights and/or contractual rights and obligations conveyed in the transaction. For
43 Market-Based Rate Final Rule, FERC Stats. & Regs. ¶ 31,252 at P 176.
44 See Milford Power Company, LLC, 118 FERC ¶ 61,093, at P 35 n.21 (2007).
45 See Shaw, 102 FERC ¶ 61,265 at P 15
a variety of factors, including the transaction structure, the nature of
voting rights and/or contractual rights and obligations conveyed in the transaction. For
43 Market-Based Rate Final Rule, FERC Stats. & Regs. ¶ 31,252 at P 176.
44 See Milford Power Company, LLC, 118 FERC ¶ 61,093, at P 35 n.21 (2007).
45 See Shaw, 102 FERC ¶ 61,265 at P 15.
46 See Metropolitan Life Insurance Company, 113 FERC ¶ 61,300, at P 6 (2005).
Docket No. PL07-1-000
- 38 -
example, in PDI Stoneman, the Commission considered the acquisition of facilities
through three transactions, over approximately seven years, in which the applicant’s
resulting ownership shares at issue at the end of each of the three transactions went from
one-third to two-thirds to 100 percent of the voting stock. The applicant claimed that
control never vested until the third transaction because of a “supermajority” provision in
the operating agreement that required approval by 80 percent of the voting stock for a
range of decisions, including the sale of electricity from the plant. The Commission
focused on the market-based rate schedule and concluded that the first transaction may
have transferred control over that jurisdictional asset because, even with one-third of the
voting stock, the applicant had the authority to influence all significant decisions,
including the sale of power from the plant. Further, the Commission ruled that the
material change in the proportion of interests after the second transaction resulted in a
change of control.47
56.
While the purpose of the above discussion is to provide guidance on what, based
on past precedent, constitutes a change of control for purposes of section 203, the burden
remains upon the entities involved in a proposed transaction to decide whether they need
to obtain Commission authorization under section 203 to undertake a proposed
transaction
ction resulted in a
change of control.47
56.
While the purpose of the above discussion is to provide guidance on what, based
on past precedent, constitutes a change of control for purposes of section 203, the burden
remains upon the entities involved in a proposed transaction to decide whether they need
to obtain Commission authorization under section 203 to undertake a proposed
transaction.
47 PDI Stoneman, 104 FERC ¶ 61,270 at P 15-17.
Docket No. PL07-1-000
- 39 -
2.
General Guideline Regarding What Is Not a Transfer of Control
57.
Based on the industry’s need for further guidance on what may or may not
constitute a transfer of control of jurisdictional facilities under section 203, and for
greater regulatory certainty in undertaking utility investments, the Commission’s general
policy in future cases will be to presume that a transfer of less than 10 percent of a public
utility’s holdings is not a transfer of control if: (1) after the transaction, the acquirer and
its affiliates and associate companies, directly or indirectly, in aggregate will own less
than 10 percent of such public utility; and (2) the facts and circumstances do not indicate
that such companies would be able to directly or indirectly exercise a controlling
influence over the management or policies of the public utility. The Commission will
apply this policy on a case-by-case basis. Further, if holding companies or other
acquirers believe that facts and circumstances prevent them from exercising control even
if they own 10 percent or more of a public utility, they may seek to make such a
demonstration to the Commission.
58.
This 10 percent threshold is consistent with the definition of “holding company”
under section 1262(8)(A) of PUHCA 2005 (at which point a company may be in control
of a subsidiary public utility). It is also consistent with the blanket authorization granted
under section 203(a)(2) in the Order No
or more of a public utility, they may seek to make such a
demonstration to the Commission.
58.
This 10 percent threshold is consistent with the definition of “holding company”
under section 1262(8)(A) of PUHCA 2005 (at which point a company may be in control
of a subsidiary public utility). It is also consistent with the blanket authorization granted
under section 203(a)(2) in the Order No. 669 rulemaking proceeding, under which
holding companies are pre-authorized to acquire up to 9.99 percent of voting securities of
a public utility, as well as the proposed section 203(a)(1) blanket authorization in the
Docket No. PL07-1-000
- 40 -
contemporaneous Notice of Proposed Rulemaking.48 Further, the Commission has
employed a rebuttable presumption in the context of its Standards of Conduct for
Transmission Providers that ownership of 10 percent or more of voting interests creates a
rebuttable presumption of control.49
48 Blanket Authorization NOPR, supra note 6. In The Goldman Sachs Group, Inc.,
114 FERC ¶ 61,118 (Goldman), order on reh’g, 115 FERC ¶ 61,303 (2006), the
Commission held that, under section 203(a)(2), subsidiaries that are not themselves
holding companies are not required to seek authorization from the Commission to
purchase, acquire, or take “covered” securities. Covered securities relate to (1)
acquisitions of securities worth more than $10 million, and (2) acquisitions of securities
of a transmitting utility, an electric company, or a holding company in a holding company
system that includes a transmitting utility, or an electric utility company. The
Commission also held that subsidiaries’ securities acquisitions are not attributable to the
upstream holding company. Thus, the upstream holding company also is not required to
seek section 203(a)(2) authorization for its subsidiaries’ acquisitions. This does not mean
that authorization may not be required under other provisions of section 203
ng utility, or an electric utility company. The
Commission also held that subsidiaries’ securities acquisitions are not attributable to the
upstream holding company. Thus, the upstream holding company also is not required to
seek section 203(a)(2) authorization for its subsidiaries’ acquisitions. This does not mean
that authorization may not be required under other provisions of section 203. For
example, if a non-utility subsidiary acquires securities of a public utility, that public
utility must obtain section 203(a)(1)(A) authorization if the transaction results in a
transfer of control of facilities valued at more than $10 million. Further, if each of a
number of non-utility subsidiaries acquires, for example, up to 9.99 percent of the same
public utility (in order to avoid becoming a holding company and/or avoid a transfer of
control to a single one of the subsidiaries), it is possible that the public utility disposition
of securities to several companies under common control could, taken as a whole, result
in a transfer of control. Finally, irrespective of the dollar amount of the transaction, an
indirect merger or consolidation could occur and require approval under section
203(a)(1)(B). Goldman, 114 FERC ¶ 61,118 at P 13-15. Thus, while the Commission’s
policy as a general matter will be to presume that a transfer of control is not likely where
ownership in a public utility is less than 10 percent, the burden is on the entities to file
under section 203 if this threshold is met. The Commission will continue to review the
facts and circumstances of transactions on a case-by-case basis.
49 18 CFR 358.3(c).
3-15. Thus, while the Commission’s
policy as a general matter will be to presume that a transfer of control is not likely where
ownership in a public utility is less than 10 percent, the burden is on the entities to file
under section 203 if this threshold is met. The Commission will continue to review the
facts and circumstances of transactions on a case-by-case basis.
49 18 CFR 358.3(c).
Docket No. PL07-1-000
- 41 -
D.
The Commission’s Appendix A Analysis
1.
Appendix A Policy and Case History
59.
The 1996 Merger Policy Statement uses an analytical screen (Appendix A
analysis) to allow early identification of transactions that clearly do not raise competitive
concerns.50 As discussed below, the Commission does not believe modifications to its
Appendix A analysis are warranted at this time. However, the Commission will provide
certain clarifications in light of the concerns raised by commenters in the Order No. 669
rulemaking proceeding and the March 8 Technical Conference.
60.
In horizontal mergers, if an applicant fails the Competitive Analysis Screen (one
piece of the Appendix A analysis), the Commission’s analysis focuses on the merger’s
effect on the merged firm’s ability and incentive to withhold output in order to drive up
the market price. The ability to withhold output depends on the amount of marginal
capacity controlled by the merged firm, and the incentive to do so depends on the amount
of infra-marginal capacity that could benefit from higher prices. For example, in a
horizontal merger combining a company with significant baseload capacity with a
company owning capacity on the margin under many season/load conditions, the theory
50 As part of the screen analysis, applicants must define the relevant products sold
by the merging entities, identify the customers and potential suppliers in the geographic
markets that are likely to be affected by the proposed transaction, and measure the
concentration in those markets
on the margin under many season/load conditions, the theory
50 As part of the screen analysis, applicants must define the relevant products sold
by the merging entities, identify the customers and potential suppliers in the geographic
markets that are likely to be affected by the proposed transaction, and measure the
concentration in those markets. Using the Delivered Price Test to identify alternative
competing suppliers, the concentration of potential suppliers included in the defined
market is then measured by the Herfindahl-Hirschman Index (HHI) and used as a screen
to determine which transactions clearly do not raise market power concerns. 1996
Merger Policy Statement, FERC Stats. & Regs. ¶ 31,044 at 30,119-20.
Docket No. PL07-1-000
- 42 -
of competitive harm would be that the combination of the “ability” assets with one
company’s existing “incentive” assets would increase the likelihood of the company
exercising market power. Proper mitigation would address the harm to competition by
reducing the merged firm’s “ability” assets or its “incentive” assets through divestiture or
some other method. In Commonwealth Edison Company, we discussed both the ability
and the incentive of the merged firm to withhold output. We found that despite screen
failures, the merger would not harm competition in the relevant wholesale markets and
therefore did not require any mitigation:
An examination of market supply conditions shows three
reasons why a profitable withholding strategy by ComEd
would be unlikely: (a) for most hours during the year, the
supply curve is relatively flat, so withholding capacity would
not significantly raise the market price; (b) for those hours
during which it could successfully raise the market price,
ComEd would have to forgo sales from its low-cost nuclear
capacity; and (c) ComEd’s only generation is nuclear which is
difficult to ramp down or up so as to withhold output during
the most profitable time periods.51
6
rve is relatively flat, so withholding capacity would
not significantly raise the market price; (b) for those hours
during which it could successfully raise the market price,
ComEd would have to forgo sales from its low-cost nuclear
capacity; and (c) ComEd’s only generation is nuclear which is
difficult to ramp down or up so as to withhold output during
the most profitable time periods.51
61.
The Commission also examines the possibility of competitive harm in vertical
mergers. In the first stage of the analysis, the Commission requires applicants to
calculate the post-merger concentration in both the upstream and downstream markets to
determine whether the upstream and downstream markets are highly concentrated,
because highly concentrated upstream and downstream markets are necessary, but not
51 Commonwealth Edison Company, 91 FERC ¶ 61,036, at 61,133 n.42 (2000).
Docket No. PL07-1-000
- 43 -
sufficient, conditions for a vertical foreclosure strategy to be effective. If both of those
necessary conditions are present, then the second stage of the analysis focuses on whether
the merger creates or enhances the ability or incentive of the merged firm to exercise
vertical market power through vertical foreclosure or raising rivals’ costs.52
62.
For example, in AEP/CSW, the Commission found – without relying solely on
changes in HHI statistics – that the merger of two vertically integrated utilities with both
transmission and generation assets would harm competition by enhancing the ability and
incentive for the merged firm to use control of its transmission assets to frustrate
competitors’ access to relevant markets
s’ costs.52
62.
For example, in AEP/CSW, the Commission found – without relying solely on
changes in HHI statistics – that the merger of two vertically integrated utilities with both
transmission and generation assets would harm competition by enhancing the ability and
incentive for the merged firm to use control of its transmission assets to frustrate
competitors’ access to relevant markets. The Commission therefore required that AEP
turn over control of its transmission facilities to a Commission-approved Regional
Transmission Operator and, in the interim, be subject to market monitoring by an
independent entity and have an independent entity calculate and post the available
transfer capacity on AEP’s transmission system.53
63.
We will continue to analyze mergers (both horizontal and vertical) and other
section 203 applications by focusing on a transaction’s effect on the company’s ability
52 See Filing Requirements Rule, FERC Stats. & Regs. ¶ 31,111 at 31,910-11.
53 American Electric Power Company and Central and Southwest Corporation,
Opinion No. 442, 90 FERC ¶ 61,242, at 61,788-90 (AEP/CSW), order on reh’g, Opinion
No. 442-A, 91 FERC ¶ 61,129 (2000), appeal denied sub nom., Wabash Valley Power
Association, Inc. v. FERC, 268 F.3d 1105 (D.C. Cir. 2001).
Docket No. PL07-1-000
- 44 -
and incentive to exercise market power, and thus harm competition. We expect
applicants and intervenors to frame their arguments in this manner.
2.
Issues Raised at the March 8 Technical Conference
a.
The Role of HHIs in the Appendix A Analysis
64.
Some commenters argued that the Commission was overly focused on the HHI
statistic, which measures concentration, and asked that the Commission look at
competitive effects of section 203 transactions that are not apparent from the assessment
of concentration.54
65
ments in this manner.
2.
Issues Raised at the March 8 Technical Conference
a.
The Role of HHIs in the Appendix A Analysis
64.
Some commenters argued that the Commission was overly focused on the HHI
statistic, which measures concentration, and asked that the Commission look at
competitive effects of section 203 transactions that are not apparent from the assessment
of concentration.54
65.
In fact, as noted above, the Commission does look beyond the change in HHI in its
analysis of the effect on competition in both horizontal and vertical mergers. The change
in HHI serves as a screen to identify those transactions that could potentially harm
competition. If the screen is failed, then, as discussed in paragraph 59 above, the
Commission examines the factors that could affect competition in the relevant market.
Specifically, in these circumstances the Commission typically considers a case-specific
theory of competitive harm, which includes, but is not limited to, an analysis of the
merged firm’s ability and incentive to withhold output in order to drive up prices. Again,
and as noted above, the Commission has discussed its consideration of such factors in
cases such as Commonwealth Edison Company. Further, the Filing Requirements Rule
54 See, e.g., Comments of Darren Bush, March 8 Technical Conference, Tr. 23;
Comments of Mark Hegedus, March 8 Technical Conference, Tr. 94-95; Comments of
Diana Moss, March 8 Technical Conference, Tr. 101; Comments of Mark J. Niefer,
March 8 Technical Conference, Tr. 108.
uch as Commonwealth Edison Company. Further, the Filing Requirements Rule
54 See, e.g., Comments of Darren Bush, March 8 Technical Conference, Tr. 23;
Comments of Mark Hegedus, March 8 Technical Conference, Tr. 94-95; Comments of
Diana Moss, March 8 Technical Conference, Tr. 101; Comments of Mark J. Niefer,
March 8 Technical Conference, Tr. 108.
Docket No. PL07-1-000
- 45 -
requires applicants failing the screen to address market conditions beyond the change in
HHI:
The facts of each case (e.g., market conditions, such as
demand and supply elasticity, ease of entry and market rules,
as well as technical conditions, such as the types of
generation involved) determine whether the merger would
harm competition. When there is a screen failure, applicants
must provide evidence of relevant market conditions that
indicate a lack of a competitive problem or they should
propose mitigation.55
Moreover, even where an applicant passes the HHI screen, the Commission also
considers intervenor theories of competitive harm.
b.
Commission-Developed Computer Simulation Model
66.
Some commenters stated that the Commission should develop and internally run
its own computer simulation model, similar to what is done by the U.S. Department of
Justice (DOJ) and the Federal Trade Commission (FTC). Dr. Frankena asserted that
using a computer simulation model would be more reliable than our alleged practice of
relying exclusively on applicants to perform the current Appendix A analysis. Mr.
Hegedus advocated the use of regional models in concert with the process the
Commission proposed in the market-based rate rulemaking proceeding and other
proceedings involving market power issues. Dr. Moss suggested using an in-house
model in a more limited way, as a consistency check on submissions rather than as a
formal evaluative tool. Dr
to perform the current Appendix A analysis. Mr.
Hegedus advocated the use of regional models in concert with the process the
Commission proposed in the market-based rate rulemaking proceeding and other
proceedings involving market power issues. Dr. Moss suggested using an in-house
model in a more limited way, as a consistency check on submissions rather than as a
formal evaluative tool. Dr. Neifer stated that models are among the many types of
55 Filing Requirements Rule, FERC Stats. & Regs. ¶ 31,111 at 31,897.
Docket No. PL07-1-000
- 46 -
evidence the DOJ considers in evaluating a merger. For example, the DOJ uses simple
models that evaluate the costs and benefits of the merger as well as more complex ones
that model a firm’s decision to operate a generating unit in the markets at issue.
67.
Other commenters argued that the costs for the Commission to develop and run its
own computer simulation model would exceed any related benefits. Mr. Baliff argued
that it would be difficult to use any model unless it were generally accepted, well known,
and accessible to all so that applicants could know whether their proposed transactions
passed muster. In addition, different models focus on different decisions – bidding
decisions, supply decisions, pricing decisions – and some or all of these may be relevant.
Mr. Hegedus argued that the Commission should develop regional models to analyze
mergers based on the information available from its analyses of market-based rate
authorizations and through its Office of Enforcement.
68.
We will not develop and run our own computer simulation model in lieu of or in
addition to the Delivered Price Test model that we already require applicants to perform
as part of the Competitive Analysis Screen
n should develop regional models to analyze
mergers based on the information available from its analyses of market-based rate
authorizations and through its Office of Enforcement.
68.
We will not develop and run our own computer simulation model in lieu of or in
addition to the Delivered Price Test model that we already require applicants to perform
as part of the Competitive Analysis Screen. While advocates of computer simulation
models believe that such models would more accurately analyze the effect on
competition, and some believe they will allow better coordination with other Commission
programs involving market power issues, these advocates have not demonstrated how the
Commission’s use of an internal model would have altered any Commission
determinations on previous section 203 applications. While the benefits of a
Commission-internal computer simulation model have not been well-defined or
Docket No. PL07-1-000
- 47 -
quantified, we believe that the costs of such a modeling requirement in time and
resources to applicants, intervenors, and Commission staff would be likely to exceed any
benefits.
69.
It also should be emphasized that those who advocate use of an internal modeling
overlook important differences between Commission proceedings under section 203 and
the processes used by the DOJ and the FTC to review mergers and acquisitions. The
Commission’s process of reviewing mergers and acquisitions under section 203 is a
public one. An application is filed publicly, all interested parties have the ability to
comment, and the Commission decides the case based on the public record. Our
Appendix A analysis facilitates this public process by requiring the submission of a
transparent market power study, using standardized assumptions and criteria, that is
available for review and comment by all interested parties, including state commissions
and customers, and, importantly, can be replicated by them in the limited time period
available for public comment
he public record. Our
Appendix A analysis facilitates this public process by requiring the submission of a
transparent market power study, using standardized assumptions and criteria, that is
available for review and comment by all interested parties, including state commissions
and customers, and, importantly, can be replicated by them in the limited time period
available for public comment. Similarly, when mitigation measures are necessary in
Commission proceedings, they are based on the public record and available for comment
by all interested parties.
70.
By contrast, the DOJ and the FTC use largely informal and non-public processes
for reviewing transactions subject to their jurisdiction. Their meetings with applicants
are not noticed to the public and are less formal in nature. This provides the DOJ and the
FTC greater flexibility to use, among other things, internal modeling tools that may not
be easily replicated or other methodological approaches that are stylized to an individual
Docket No. PL07-1-000
- 48 -
case. In DOJ and FTC proceedings, staff and applicants can engage in extensive informal
communications to discuss and address data, methodological and other disputes that are
associated with these more stylized approaches. Similarly, when mitigation is required,
staff and applicants can design such mitigation measures in a non-public manner. In sum,
these more informal processes, while entirely appropriate in the context of DOJ and FTC
review of mergers and transactions, simply cannot be replicated by the Commission
given the due process and other considerations relevant in proceedings under section 203
of the FPA.
71.
We also note that some commenters urging the Commission to develop and run its
own internal computer simulation model are mistakenly assuming that the current process
is flawed because applicants can file merger impact studies using their own
methodologies and assumptions
the Commission
given the due process and other considerations relevant in proceedings under section 203
of the FPA.
71.
We also note that some commenters urging the Commission to develop and run its
own internal computer simulation model are mistakenly assuming that the current process
is flawed because applicants can file merger impact studies using their own
methodologies and assumptions. On the contrary, in the 1996 Merger Policy Statement,
in the Filing Requirements Rule and in many subsequent orders interpreting those
issuances, the Commission has carefully set forth the requirements of how the
Commission’s adopted study methodology, the Delivered Price Test, must be performed
and what assumptions the Commission will accept as reasonable. If applicants fail to
perform the studies according to the Commission’s prescribed methodology, or their
studies are based on faulty assumptions or use questionable data inputs, then those studies
Docket No. PL07-1-000
- 49 -
are required to be amended or supplemented with additional data.56 In some cases the
Commission has required that new studies be conducted which conform to the
Commission’s standards. Thus, contrary to the view of some commenters, neither the
Commission nor intervenors are disadvantaged by our current policy of requiring
applicants to perform the merger impact studies, nor is the Commission subject to
manipulation by applicants who can allegedly game the studies to their own benefit.
Studies which do not conform to the Commission’s explicit requirements are either
rejected or required to be revised until they do conform, and intervenors have opportunity
in every merger proceeding to inform the Commission if they believe that something in
the applicant’s study is amiss.
72
sion subject to
manipulation by applicants who can allegedly game the studies to their own benefit.
Studies which do not conform to the Commission’s explicit requirements are either
rejected or required to be revised until they do conform, and intervenors have opportunity
in every merger proceeding to inform the Commission if they believe that something in
the applicant’s study is amiss.
72.
Specifically, merger applicants must submit the model and all of the data inputs
necessary for completing the Competitive Analysis Screen in any section 203 Application
requiring a complete Appendix A analysis.57 In those cases, Commission staff reviews
the data supplied and runs the applicants’ models to check the accuracy of the results and
the sensitivity of the results to changes in the underlying assumptions. In addition, the
56 For example, in Entergy Gulf States, Inc., Commission Staff was unable to
verify the results of applicants’ model performing the Competitive Analysis Screen, and
sent the applicants a deficiency letter identifying the error in the input data and requiring
the applicants to submit the corrected data. Entergy Gulf States, Inc., Docket No. EC07-
70-000, at 1 (Apr. 6, 2007) (unpublished deficiency letter).
57 In cases involving a de minimis amount of generation being combined in the
relevant geographic market, applicants are not required to perform a complete Appendix
A analysis.
ciency letter identifying the error in the input data and requiring
the applicants to submit the corrected data. Entergy Gulf States, Inc., Docket No. EC07-
70-000, at 1 (Apr. 6, 2007) (unpublished deficiency letter).
57 In cases involving a de minimis amount of generation being combined in the
relevant geographic market, applicants are not required to perform a complete Appendix
A analysis.
Docket No. PL07-1-000
- 50 -
models and input data are available to intervenors in the proceeding, who can also verify
the accuracy of the results and perform sensitivity tests.
73.
A complete Competitive Screen Analysis submission provides sufficient
information to identify those transactions that may harm competition. The data submitted
includes a valuable intermediate calculation: a supply curve of all the generators that can
possibly serve the area, and whether those generators are dispatched given transmission
constraints. Finding the supply curve requires an estimate of suppliers’ generation costs,
including fuel costs, operation and maintenance costs, heat rates, and emissions costs;
competitive market prices; transmission prices; and transmission import constraints.58
Whether the Commission grants the merger application with or without conditions,
rejects it, or sets it for hearing, the Commission can determine whether the application
presents any competitive issues because the current Competitive Analysis Screen is
sufficiently precise to make such a determination.
74.
In summary, there has been no showing that a Commission-internal computer
simulation model is needed, both in light of these burdens as well as because the study
that the Commission already requires applicants to perform is adequate to measure the
potential for competitive harm associated with section 203 dispositions. And, as noted
58 See 1996 Merger Policy Statement, FERC Stats. & Regs. ¶ 31,044 at 30,130-33
(discussion of the delivered price test).
ight of these burdens as well as because the study
that the Commission already requires applicants to perform is adequate to measure the
potential for competitive harm associated with section 203 dispositions. And, as noted
58 See 1996 Merger Policy Statement, FERC Stats. & Regs. ¶ 31,044 at 30,130-33
(discussion of the delivered price test).
Docket No. PL07-1-000
- 51 -
above, the Commission is diligent in ensuring that applicants conduct the Competitive
Analysis Screen properly, including using reasonable assumptions and data inputs.
c.
Adding Hart-Scott-Rodino Information to the Section 203
Record
75.
Some commenters suggested that the Commission require applicants to file all
materials submitted to the DOJ and the FTC in their Hart-Scott-Rodino (HSR) filings.
Other commenters noted that such a filing would create confidentiality concerns due to
the public nature of the Commission’s section 203 proceedings. We also share those
concerns. Unlike the DOJ and the FTC, who can keep any of the information
confidential, our proceedings require a public record, and our decisions must be based on
evidence that is available to the parties of record in the proceeding. We permit applicants
to request confidentiality for certain documents and file a protective order to allow
intervenors to view those documents. However, we cannot maintain the same degree of
confidentiality as do the DOJ and the FTC.59 The HSR filings often contain highly
sensitive proprietary documents such as the companies’ price forecasts, pricing analyses,
59 As Mark J. Niefer noted, “the [Antitrust] Division [of the DOJ] is precluded
from sharing much of the information it gathers to analyze a merger” and “[e]xcept in
very limited circumstances, information provided to the Division . . . may not be
disclosed to others without the consent of the producing party.” Comments of Mark J
ing analyses,
59 As Mark J. Niefer noted, “the [Antitrust] Division [of the DOJ] is precluded
from sharing much of the information it gathers to analyze a merger” and “[e]xcept in
very limited circumstances, information provided to the Division . . . may not be
disclosed to others without the consent of the producing party.” Comments of Mark J.
Niefer, March 8 Technical Conference, Tr. 106-07.
Docket No. PL07-1-000
- 52 -
and pricing decisions.60 Access to such valuable commercial information could not only
harm the merging companies, it could also harm competition in wholesale electricity
markets by facilitating coordination by competitors, who would have a better
understanding of each other’s pricing strategies and competitive objectives.
d.
Alternatives to Trial-Type Hearings
76.
Some commenters suggested that the Commission use alternatives to trial-type
evidentiary hearing procedures, including technical conferences and paper hearings with
limited periods of discovery and additional data requests.
77.
Given the statutory deadlines faced by the Commission on section 203
applications,61 we believe that holding an evidentiary hearing generally will not be
feasible, depending on the issues in dispute. Therefore, in cases that present complicated
factual disputes, we will consider alternatives such as paper hearings with a limited
period of discovery, so that we can develop a complete record.
e.
Attribution of Generation Under Contract
78.
Some commenters also requested clarification on how generation under contract
should be attributed in the analysis of market concentration. Specifically, they asked
60 See Federal Trade Commission, Introductory Guide III to the Premerger
Notification Program, Model Request for Additional Information and Documentary
Material (Second Request) (revised May 2007), available at
http://www.ftc.gov/bc/hsr/introguides/guide3.pdf
should be attributed in the analysis of market concentration. Specifically, they asked
60 See Federal Trade Commission, Introductory Guide III to the Premerger
Notification Program, Model Request for Additional Information and Documentary
Material (Second Request) (revised May 2007), available at
http://www.ftc.gov/bc/hsr/introguides/guide3.pdf.
61 Under revised section 203, the Commission must act within 180 days of a
complete application, and with good cause may extend the deadline another 180 days. If
not, the authorization is granted by law.
Docket No. PL07-1-000
- 53 -
whether the generation should be attributed to the party with operational control of the
generation facility or to the party with the economic interest in the capacity.
79.
The determination on whether a long-term generation contract should be attributed
to the purchaser of power or the seller depends on the party with operational control,
which depends upon the specific contract. Therefore, we have required that applicants
file information about whether their long-term generation contracts confer operational
control over generation resources to the purchaser. Our practice has been to attribute
contracted capacity to the purchaser if such a contract confers operational control over
the generation to the purchaser.62 We will continue this practice, and require applicants
to file purchase and sales data, including information on whether the terms and conditions
of purchase contracts confer operational control over generation to the purchaser.
However, if an applicant fails the Competitive Analysis Screen, we will consider
arguments regarding the ability and incentive of the merged firm to exercise market
power, and therefore consider the merged firm’s contractual positions as well as its
physical control of generation.
III.
Information Collection Statement
80
ontracts confer operational control over generation to the purchaser.
However, if an applicant fails the Competitive Analysis Screen, we will consider
arguments regarding the ability and incentive of the merged firm to exercise market
power, and therefore consider the merged firm’s contractual positions as well as its
physical control of generation.
III.
Information Collection Statement
80.
The Office of Management and Budget’s (OMB) regulations require that OMB
approve certain information collection and data retention requirements imposed by
62 See Filing Requirements Rule, FERC Stats. & Regs. ¶ 31,111 at 31,888.
Docket No. PL07-1-000
- 54 -
agency rules.63 In this supplemental policy statement, the Commission is providing
guidance regarding future implementation of FPA section 203. The Commission is not
imposing any additional information collection requirement upon the public. The
Commission is not proposing any changes to its current regulations. Accordingly, there
should be no impact on the current reporting burden associated with an individual section
203 application. The Commission also does not expect the total number of section 203
applications to be affected by this Supplemental Policy Statement. However, the
Commission will submit for informational purposes only a copy of this Supplemental
Policy Statement to OMB.
Burden Estimate: The Public Reporting and records retention burden for section 203
applications is as follows.
Title: FERC-519, “Application Under the Federal Power Act, Section 203”
Action: Revised Collection
OMB Control No: 1902-0082
The applicant will not be penalized for failure to respond to this information
collection unless the information collection displays a valid OMB control number or the
Commission has provided justification as to why the control number should not be
displayed.
Respondents: Businesses or other for profit
ower Act, Section 203”
Action: Revised Collection
OMB Control No: 1902-0082
The applicant will not be penalized for failure to respond to this information
collection unless the information collection displays a valid OMB control number or the
Commission has provided justification as to why the control number should not be
displayed.
Respondents: Businesses or other for profit.
Frequency of Responses: N/A
63 5 CFR 1320.
Docket No. PL07-1-000
- 55 -
Necessity of the Information: This Supplemental Policy Statement provides guidance
regarding future implementation of FPA section 203. The Commission is not proposing
any changes to its current regulations.
Internal Review: The Commission has conducted an internal review of the public
reporting burden associated with the collection of information and assured itself, by
means of internal review, that there is specific, objective support for its existing
information burden estimate.
81.
Interested persons may obtain information on the reporting requirements by
contacting: Federal Energy Regulatory Commission, 888 First Street, N.E., Washington,
D.C., 20426 [Attention: Michael Miller, Office of the Executive Director, Phone (202)
502-8415, fax (202) 273-0873, e-mail: michael.miller@ferc.gov]. Comments on the
requirements of the Supplemental Policy Statement may also be sent to the Office of
Information and Regulatory Affairs, Office of Management and Budget, Washington,
D.C. 20503 [Attention: Desk Officer for the Federal Energy Regulatory Commission,
fax (202) 395-7285, e-mail oira_submission@omb.eop.gov].
IV.
Environmental Analysis
82.
The Commission is required to prepare an Environmental Assessment or an
Environmental Impact Statement for any action that may have a significant adverse effect
ory Affairs, Office of Management and Budget, Washington,
D.C. 20503 [Attention: Desk Officer for the Federal Energy Regulatory Commission,
fax (202) 395-7285, e-mail oira_submission@omb.eop.gov].
IV.
Environmental Analysis
82.
The Commission is required to prepare an Environmental Assessment or an
Environmental Impact Statement for any action that may have a significant adverse effect
Docket No. PL07-1-000
- 56 -
on the human environment.64 The Commission has categorically excluded certain actions
from this requirement as not having a significant effect on the human environment.65 The
Supplemental Policy Statement is categorically excluded as it addresses actions under
section 203.66 Accordingly, no environmental assessment is necessary and none has been
prepared in this Supplemental Policy Statement.
V.
Regulatory Flexibility Act Certification
83.
The Regulatory Flexibility Act of 1980 (RFA)67 requires agencies to prepare
certain statements, descriptions and analyses of proposed rules that will have a significant
economic impact on a substantial number of small entities.68 However, the RFA does not
define “significant” or “substantial.” Instead, the RFA leaves it up to an agency to
determine the effect of its regulations on small entities.
64 Regulations Implementing the National Environmental Policy Act, Order No.
486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs., Regulations Preambles 1986-
1990 ¶ 30,783 (1987).
65 18 CFR 380.4.
66 See 18 CFR 380.4(a)(16).
67 5 U.S.C. 601-12.
68 The RFA definition of “small entity” refers to the definition provided in the
Small Business Act, which defines a “small business concern” as a business that is
independently owned and operated and that is not dominant in its field of operation.
15 U.S.C. 632
. & Regs., Regulations Preambles 1986-
1990 ¶ 30,783 (1987).
65 18 CFR 380.4.
66 See 18 CFR 380.4(a)(16).
67 5 U.S.C. 601-12.
68 The RFA definition of “small entity” refers to the definition provided in the
Small Business Act, which defines a “small business concern” as a business that is
independently owned and operated and that is not dominant in its field of operation.
15 U.S.C. 632. The Small Business Size Standards component of the North American
Industry Classification System defines a small electric utility as one that, including its
affiliates, is primarily engaged in the generation, transmission, and/or distribution of
electric energy for sale and whose total electric output for the preceding fiscal year did
not exceed 4 million MWh. 13 CFR 121.201.
Docket No. PL07-1-000
- 57 -
84.
Most filing companies regulated by the Commission do not fall within the RFA’s
definition of small entity.69 Further, as noted above, the Supplemental Policy Statement
does not propose any changes to the Commission’s current regulations under section 203;
therefore there is no change in how the Commission’s regulations under section 203
affect small entities. Therefore, the Commission certifies that the Supplemental Policy
Statement will not have a significant economic impact on a substantial number of small
entities. As a result, no regulatory flexibility analysis is required.
VI.
Document Availability
85.
In addition to publishing the full text of this document in the Federal Register, the
Commission provides all interested persons an opportunity to view and/or print the
contents of this document via the Internet through the Commission’s Home Page
(http://www.ferc.gov) and in the Commission’s Public Reference Room during normal
business hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street, N.E., Room 2A,
Washington D.C. 20426.
86.
From the Commission’s Home Page on the Internet, this information is available
in the Commission’s document management system, eLibrary
ocument via the Internet through the Commission’s Home Page
(http://www.ferc.gov) and in the Commission’s Public Reference Room during normal
business hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street, N.E., Room 2A,
Washington D.C. 20426.
86.
From the Commission’s Home Page on the Internet, this information is available
in the Commission’s document management system, eLibrary. The full text of this
document is available on eLibrary in PDF and Microsoft Word format for viewing,
69 5 U.S.C. 601(3), citing to section 3 of the Small Business Act, 15 U.S.C. 632.
Section 3 of the Small Business Act defines a “small-business concern” as a business
which is independently owned and operated and which is not dominant in its field of
operation.
Docket No. PL07-1-000
- 58 -
printing, and/or downloading. To access this document in eLibrary, type the docket
number (excluding the last three digits of the docket number), in the docket number field.
87.
User assistance is available for eLibrary and the Commission’s website during
normal business hours. For assistance, please contact FERC Online Support at (202)
502-6652 (toll-free at 1-866-208-3676) or e-mail at ferconlinesupport@ferc.gov, or the
Public Reference Room at (202) 502-8371, TTY (202) 502-8659. E-mail the Public
Reference Room at public.referenceroom@ferc.gov.
VII. Effective Date and Congressional Notification
88.
This Supplemental Policy Statement is effective [insert date of issuance]. The
Commission has determined that, consistent with the discussion above with regard to
information collection and the RFA, this policy statement also is not a “major rule” as
defined in section 351 of the Small Business Regulatory Enforcement Fairness Act of
1996. The Commission will submit this Supplemental Policy Statement to both houses of
Congress and to the General Accounting Office
. The
Commission has determined that, consistent with the discussion above with regard to
information collection and the RFA, this policy statement also is not a “major rule” as
defined in section 351 of the Small Business Regulatory Enforcement Fairness Act of
1996. The Commission will submit this Supplemental Policy Statement to both houses of
Congress and to the General Accounting Office.
List of subjects in 18 CFR Part 33
Electric utilities, Reporting and recordkeeping requirements, Securities.
By the Commission.
( S E A L )
Kimberly D. Bose,
Secretary.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.