Repeal of the Public Utility Holding Company Act of 1935 and Enactment of the Public Utility Holding Company Act of 2005, 28446-28463 [06-4042]

Agencies

• DEPARTMENT OF ENERGY
• Federal Energy Regulatory Commission

[Federal Register Volume 71, Number 94 (Tuesday, May 16, 2006)]
[Rules and Regulations]
[Pages 28446-28463]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-4042]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 365 and 366

[Docket No. RM05-32-001, Order No. 667-A]


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

Issued April 24, 2006.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final Rule; Order on rehearing.

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SUMMARY: In this order on rehearing, the Federal Energy Regulatory 
Commission (Commission) reaffirms its determinations in part and grants 
rehearing in part of Order No. 667, which amended the Commission's 
regulations to implement the repeal of the Public Utility Holding 
Company Act of 1935 and the enactment of the Public Utility Holding 
Company Act of 2005.

DATES: Effective Date: The final rule and order on rehearing are 
effective June 15, 2006.

FOR FURTHER INFORMATION CONTACT: 
Lawrence Greenfield (Legal Information), Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426. (202) 502-
6415.
Abraham Silverman (Legal Information), Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426. (202) 502-
6444.
James Guest (Technical Information), Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426. (202) 502-
6614.

SUPPLEMENTARY INFORMATION: 
Before Commissioners: Joseph T. Kelliher, Chairman; Nora Mead 
Brownell, and Suedeen G. Kelly; Order on Rehearing
    1. On December 8, 2005, the Federal Energy Regulatory Commission 
(Commission) issued Order No. 667,\1\ in which the Commission amended 
its regulations to implement the repeal of the Public Utility Holding 
Company Act of 1935 and the enactment of the Public Utility Holding 
Company Act of 2005, by adding Subchapter U and Part 366 to its 
regulations and removing its exempt wholesale generator rules 
previously

[[Page 28447]]

found in Subchapter T and Part 365. In this order, we deny in part and 
grant in part the various requests for rehearing received by the 
Commission, and amend Subchapter U and Part 366 of our regulations 
accordingly.\2\
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    \1\ 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).
    \2\ We note that contemporaneously with this order, we are 
issuing in Docket No. RM06-11-000, a Notice of Proposed Rulemaking 
proposing a new Uniform System of Accounts and new record retention 
requirements, along with conforming changes to 18 CFR 366.21-366.23. 
See Financial Accounting, Reporting and Records Retention 
Requirements Under the Public Utility Holding Company Act of 2005, 
Notice of Proposed Rulemaking, published elsewhere in this issue of 
the Federal Register, FERC Stats. & Regs. ] 32,600 (2006).
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Introduction

    2. Order No. 667 was issued in response to the Energy Policy Act of 
2005 (EPAct 2005),\3\ which in relevant part repeals the Public Utility 
Holding Company Act of 1935 (PUHCA 1935) \4\ and enacts the Public 
Utility Holding Company Act of 2005 (PUHCA 2005).\5\ Order No. 667 was 
issued to comply with various sections of EPAct 2005, which directed 
the Commission to issue certain rules on or before December 8, 2005.\6\
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    \3\ Energy Policy Act of 2005, Pub. L. 109-58, 119 Stat. 594 
(2005).
    \4\ 15 U.S.C. 79a et seq.
    \5\ EPAct 2005 at 1261 et seq.
    \6\ Id. at 1266, 1272, 1275. Concurrently with the issuance of 
Order No. 667, the Commission submitted a report to Congress on 
proposed technical and conforming amendments to PUHCA 2005. One such 
proposed amendment was a revision to section 1275(b) to provide for 
Commission review of cost allocations not only to public utilities 
but also to natural gas companies within a holding company system. 
The Interstate Natural Gas Association of America subsequently asked 
the Commission to clarify that it intended to recommend an amendment 
to provide for Commission review of cost allocations to gas utility 
companies and not natural gas companies. We agree. We misspoke and 
intended to recommend to Congress an amendment to provide for 
Commission review of cost allocations to gas utility companies and 
not natural gas companies; there is little or no likelihood of 
conflicting regulation that would necessitate amendment of section 
1275(b) to address cost allocations to natural gas companies. 
Separately, we also note that our authority with respect to natural 
gas companies is already substantial and no further authority is 
needed.
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Background

    3. On September 16, 2005, the Commission issued a notice of 
proposed rulemaking (NOPR) \7\ in which it proposed to add a new 
Subchapter U and Part 366 to Title 18 of the Code of Federal 
Regulations to implement Title XII, Subtitle F of EPAct 2005 and to 
remove Subchapter T and Part 365 of Title 18 of the Code of Federal 
Regulations.
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    \7\ Repeal of the Public Utility Holding Company Act of 1935 and 
Enactment of the Public Utility Holding Company Act of 2005, Notice 
of Proposed Rulemaking, 70 FR 55,805 (2005), FERC Stats. & Regs. ] 
32,588 (2005).
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    4. Section 1264 of PUHCA 2005 concerns Commission access to the 
books and records of holding companies and other companies in holding 
company systems, and section 1275 of PUHCA 2005 addresses the 
Commission's review and authorization of the allocation of costs for 
non-power goods or administrative or management services when requested 
by a holding company system or state commission. The Federal books and 
records access provision, section 1264, and the non-power goods and 
services provision, section 1275, of PUHCA 2005 supplement the 
Commission's existing authorities under the Federal Power Act (FPA) \8\ 
and the Natural Gas Act (NGA) \9\ to protect customers against improper 
cross-subsidization or encumbrances of jurisdictional company assets, 
including the Commission's broad authority under FPA section 301 and 
NGA section 8 to obtain the books and records of regulated companies 
and any person that controls or is controlled by such companies if 
relevant to jurisdictional activities.\10\
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    \8\ 16 U.S.C. 824d-e.
    \9\ 15 U.S.C. 717c-d.
    \10\ 16 U.S.C. 825; 15 U.S.C. 717g.
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    5. In implementing Order No. 667, the Commission recognized ``the 
clear intent of Congress to repeal the regulatory regime established by 
PUHCA 1935 and to rely on state regulatory authorities and the 
Commission to protect energy customers, by supplementing the 
Commission's books and records authority under PUHCA 2005 and by 
enhancing our already significant authority over public utility 
mergers, acquisitions and dispositions of jurisdictional facilities.'' 
\11\
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    \11\ Order No. 667 at P 4.
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    6. Subsequent to our issuance of Order No. 667, on February 8, 
2006, the repeal of PUHCA 1935 and the new PUHCA 2005 became effective. 
As we emphasized in Order No. 667, however, the changes in law do not 
affect our primary means of protecting customers served by 
jurisdictional companies that are members of holding company systems: 
the FPA and NGA. In particular, the Commission's rate authorities and 
information access authorities under the FPA and NGA enable the 
Commission to detect and disallow from jurisdictional rates any 
imprudently-incurred, unjust or unreasonable, or unduly discriminatory 
or preferential costs resulting from affiliate transactions between 
companies in the same holding company system.\12\ Additionally, the 
Commission's authority under section 203 of the FPA,\13\ as amended by 
EPAct 2005, over mergers and other corporate transactions involving 
public utilities and certain public utility holding companies provides 
the ability to ensure that proposed transactions are consistent with 
the public interest and do not result in inappropriate cross-
subsidization or encumbrances of utility assets. We also emphasize that 
nothing in new Subchapter U and Part 366 of the Commission's 
regulations affects the Commission's independent ability to obtain 
access to books and records under the FPA and NGA.
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    \12\ Since the vast majority of registered public utility 
holding companies under PUHCA 1935 were electric public utility 
holding companies, our description here focuses primarily on the 
FPA. However, except for merger and corporate authority under the 
FPA, our authorities and processes under the NGA are similar.
    \13\ 16 U.S.C. 824b; Pub. L. 109-58, 1289, 119 Stat. 594, 982-83 
(2005).
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    7. Finally, we note that we have committed in Order No. 667 to hold 
a technical conference no later than one year from the effective date 
of PUHCA 2005 to assess whether additional actions are needed in order 
to effectively safeguard ratepayers.

Discussion

1. Definitions

    8. A number of commenters sought rehearing and/or clarification of 
the definitions provided in Sec.  366.1 of the Commission's 
regulations. However, these requests are more appropriately addressed 
in the ``Exemption Authority'' section below, and will be discussed 
there.

2. Books and Records Requirements

    9. American Public Power Association and the National Rural 
Electric Cooperative Association (APPA/NRECA) argue that Order No. 667 
should be amended to require that service companies submit as part of 
their annual report (Form No. 60) detailed supporting schedules for 
Outside Services Employed and Employee Pensions and Benefits.\14\ 
According to APPA/NRECA, excluding supporting details of the costs 
incurred for outside services employed and employee pensions and 
benefits provides an opportunity for non-utility related costs incurred 
by service companies to be inappropriately passed on to jurisdictional 
public utilities and the schedule of expense by department or service 
function in Form No. 60 does not appear to provide sufficient

[[Page 28448]]

transparency to enable detection of cross-subsidies.\15\
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    \14\ APPA/NRECA Rehearing Request at 4.
    \15\ Id. at 15.
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    10. APPA/NRECA further argue that Order No. 667 should be amended 
to require holding companies to continue to file Securities and 
Exchange Commission (SEC) Form U-5S for the time being.\16\ APPA/NRECA 
notes that Order No. 667 states the filing of SEC Form U-5S will not be 
required because ``the information in this form is available in other 
Commission or SEC filings and/or is not relevant to costs incurred by 
jurisdictional entities and is not necessary or appropriate for the 
protection of utility customers with respect to jurisdictional rates.'' 
\17\ According to APPA/NRECA, by using ``and'' and ``or'' conjunctions, 
this sentence provides no clear rationale for the Commission's 
conclusion. Moreover, it does not identify the Commission or SEC 
filings in which the information in SEC Form U-5S is available or 
explain why information that is not available in other Commission or 
SEC filings is not relevant to jurisdictional rates. APPA/NRECA thus 
urges the Commission to retain Form U-5S and determine at a later date 
whether to continue requiring holding companies to file it.
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    \16\ Prior to the repeal of PUHCA 1935, the SEC required 
registered public utility holding companies to file an annual Form 
U-5S, providing information on the company's corporate structure, 
board of directors, acquisitions or sales of utility assets, 
securities transactions, investments in companies outside the 
holding company family, political contributions, contracts between 
the service company and utility affiliates, relations between the 
holding company and any exempt wholesale generator (EWG) or foreign 
utility company (FUCO), and a copy of the company's yearly financial 
reports.
    \17\ Order No. 667 at P 95.
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    11. We will not at this time adopt APPA/NRECA's request and require 
that service companies submit as part of their annual Form No. 60 
detailed supporting schedules for outside services employed and 
employee pensions and benefits. We are not persuaded that such 
additional detail is needed in the annual Form No. 60. If necessary, 
such information is accessible in the context of a rate case when a 
public utility files to change its rates under section 205,\18\ or the 
Commission, on its own motion, may obtain access to such information as 
necessary in the context of an audit or the institution of a section 
206 rate investigation.\19\ Moreover, we note that, in Order No. 667, 
we committed to hold a technical conference to address, among other 
things, what changes to the Commission's accounting, record-retention, 
reporting or related rules may be necessary.\20\ APPA/NRECA's concerns 
would be more appropriately addressed in that technical conference 
after the Commission has received the first Form No. 60's, which are 
required to be filed on or before May 1, 2006.\21\
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    \18\ 16 U.S.C. 824d; 18 CFR 35.13; 18 CFR 385.401-11, 
385.504(b)(5).
    \19\ 16 U.S.C. 824d, 825; 18 CFR 385.401-11, 385.504(b)(5).
    \20\ Order No. 667 at P 17.
    \21\ See 18 CFR 366.23.
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    12. We will not require holding companies to continue to file SEC 
Form U-5S. Section 1264 of EPAct 2005 supplements our broad authority 
under section 301 of the FPA and section 8 of the NGA to obtain the 
books and records of public utilities and natural gas companies, and 
any person that controls, directly or indirectly, a public utility or 
natural gas company, and any other company controlled by such person, 
insofar as the books and records relate to transactions with or the 
business of the jurisdictional company.\22\ In Order No. 667, we 
determined that these FPA and NGA authorities, along with the other 
accounting, record-retention, and reporting requirements adopted under 
PUHCA 2005, are sufficient to ensure that the Commission may obtain any 
books and records relevant to costs incurred by jurisdictional 
entities. Moreover, we saw no need for the wholesale adoption of SEC 
Form U-5S because we determined, on balance, that the information 
contained therein was either duplicative or unnecessary. For example, 
Item 2 in the U-5S calls for the reporting of acquisitions or sales of 
utility assets. However, the same or similar information is required to 
be reported by public utilities within a holding company system on page 
108 of their Form No. 1. Similarly, Item 3 in the U-5S calls for 
reporting the issuance or sale of system securities. The same or 
similar information is required to be reported by public utilities 
within a holding company system on pages 256 and 257 of their Form No. 
1. Also, the notes to the consolidated financial statements required by 
Item 10 in the U-5S contain the same information required to be 
reported in the SEC Form 10-K.
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    \22\ See 16 U.S.C. 825(c); 15 U.S.C. 717g(c).
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3. Exemption Authority

Section 1266(a) Exemptions
    13. A number of the requests for rehearing argue that the 
Commission should clarify that holding companies that are exempt under 
section 1266(a) of PUHCA 2005 are not ``holding companies'' and thus 
should not be required to file either FERC-65 (notification of holding 
company status) or to seek exemption or waiver by means of FERC-65A 
(exemption notification) or FERC-65B (waiver notification).\23\ Coral 
Power, L.L.C. and Shell WindEnergy, Inc. (Independent Power Producers) 
request that the Commission amend Order No. 667 such that the 
requirement to file FERC-65A is not imposed on entities that they 
claim, by definition, are not ``holding companies.'' \24\ Independent 
Power Producers further argue that Order No. 667 does not completely 
implement the Commission's stated intent to deem EWGs, FUCOs, and 
qualifying facilities (QFs), and power and gas marketers not to be 
``public-utility companies'' under PUHCA 2005, and Independent Power 
Producers thus seek rehearing or clarification insofar as Order No. 667 
refers to owners of certain entities that are excluded from the 
definition of ``public-utility company'' as ``holding companies.'' \25\ 
Similarly, Morgan Stanley Capital Group (Morgan Stanley) urges the 
Commission to state explicitly that any ``person or company'' qualified 
to file Form FERC-65A (exemption notification) is merely filing notice 
that it is not a ``holding company'' under PUHCA 2005, and that such 
party is not filing as a ``holding company'' applying for exemption 
from PUHCA 2005's books and records obligations.\26\ In the 
alternative, if the Commission does not provide the clarification 
requested above, then Morgan Stanley requests rehearing of Order No. 
667 to the extent it purports to construe owners of EWGs, FUCOs, and 
QFs, as well as passive investors, mutual funds, broker/dealers, 
underwriters or trusts as ``holding companies.'' \27\ Finally, NRG 
requests that the Commission should amend the definition of ``electric 
utility company'' to provide that a QF is not an ``electric utility 
company,'' consistent with section 1266(a) of PUHCA 2005 and section 
210(e) of PURPA.\28\
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    \23\ We note that, unlike Form No. 60, the FERC-65, FERC-65A and 
FERC-65B are not forms per se, and we left to the discretion of the 
person or company filing them how to best provide the information 
and showing that needs to be submitted.
    \24\ Independent Power Producers Rehearing Request at 2-3.
    \25\ Id.
    \26\ Morgan Stanley Rehearing Request at 1.
    \27\ Id. at 4.
    \28\ NRG Rehearing Request at 3.
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    14. The Commission will deny the requests to clarify that companies 
that are exempt under section 1266(a) (i.e., entities that own or 
control only EWGs, FUCOs, or QFs) are not holding companies under PUHCA 
2005. In

[[Page 28449]]

defining the term ``holding company'' in PUHCA 2005, Congress expressly 
excluded from the definition certain financial and securities firms, 
but did not exclude from the definition companies that own, control or 
hold the power to vote securities of only QFs, EWGs, or FUCOs. Rather, 
Congress specifically stated in section 1266 of PUHCA 2005 that the 
Commission was to ``exempt'' from section 1264 of PUHCA 2005 ``any 
person that is a holding company, solely with respect to one or more 
[QFs, EWGs, or FUCOs].'' Thus, the wording of the exemption itself 
recognizes that such persons are holding companies, but mandates that 
an exemption be provided for such persons.\29\ Accordingly, it would be 
inconsistent with the statute to find that such persons are not holding 
companies. We recognize, however, that there is an internal 
inconsistency in our finding that the statute considers such persons to 
be holding companies and in the regulatory text of Order No. 667 which 
excludes EWGs from the definition of ``electric utility company.'' As 
commenters point out, if an EWG is not considered an ``electric utility 
company,'' then a person that owns only EWGs arguably would not even be 
a holding company because it does not control an electric utility 
company.\30\ Accordingly, to be consistent with the statutory 
construction of PUHCA 2005, we are amending Sec.  366.1 of our 
regulations to remove from the definitions of ``electric utility 
company'' and ``exempt wholesale generator'' the statement that an EWG 
is not an electric utility company.\31\ Moreover, including EWGs, FUCOs 
and QFs as electric utility companies is consistent with common usage, 
which supports defining electric utility companies as companies owning 
electric facilities (generation, transmission or distribution) for the 
sale of electric energy. However, as discussed infra, persons that are 
holding companies solely with respect to EWGs, QFs, or FUCOs will 
receive an automatic exemption and will not be required to file FERC-65 
or FERC-65A.
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    \29\ The Commission notes that under sections 32 and 33 of PUHCA 
1935, EWGs and FUCOs were not included in the term ``electric 
utility company.'' However Congress did not include such a statement 
in PUHCA 2005. Instead, PUHCA 2005 says only that EWGs and FUCOs 
should have the same ''meanings'' as in PUHCA 1935. The exemptions 
in PUHCA 1935 were not in the definitional subsections on EWGs or 
FUCOs. If EWGs, FUCOs and QFs are not electric utility companies, 
then section 1266(a) would be superfluous. Thus, we reject any 
arguments that EWGs or FUCOs do not fall under the definition of 
``electric utility company.''
    \30\ As noted previously, to accept this line of argument by 
commenters would also render the section 1266 exemption superfluous 
and thus would be inconsistent with the principle that a statute 
should be construed to give effect to all of its provisions. See, 
e.g., 2A N. Singer, Statutes and Statutory Construction 46.06 at 
181-186 (Rev. 6th Ed. 2000).
    \31\ We note that there is a similar regulatory text problem in 
Order No. 671, which excludes QFs from the definition of ``electric 
utility company.'' See Revised Regulations Governing Small Power 
Production and Cogeneration Facilities, Order No. 671, 71 FR 7852 
(Feb. 15, 2006), FERC Stats. & Regs. ] 31,203 at P 92, 102 (2006). 
For the same reasons as discussed above, upon further consideration, 
we have concluded that the position taken in Order No. 671 would 
similarly render superfluous the exemption granted in section 
1266(a)(1) to a person that is a holding company solely with respect 
to QFs. Therefore, we clarify here that QFs will not be excluded 
from the definition of ``electric utility company'' but nevertheless 
we intend to exempt QFs from PUHCA 2005 and most FPA requirements 
pursuant to our PURPA authority to grant such exemptions. We intend 
to revise 18 CFR 292.602 of the Commission's regulations to remove 
the statement that a QF is not an ``electric utility company'' 
within the meaning of PUHCA 2005.
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    15. For the same reasons, we will deny Morgan Stanley's request 
that we should treat all passive investors, mutual funds, broker/
dealers, underwriters or trusts not as ``holding companies.'' If such 
entities fall within the exclusion from the definition of holding 
company contained in Sec.  366.1 of our regulations, which tracks the 
statutory definition of holding company, they would not be holding 
companies (and thus would not be subject to Commission regulation under 
PUHCA 2005), but if they instead fall within the definition of holding 
company, then they would be holding companies (and, absent exemption or 
waiver, would be subject to Commission regulation under PUHCA 2005). 
Section 366.3(b) of our regulations as revised herein, consistent with 
section 1266(b) of PUHCA 2005, permits the Commission to exempt other 
persons or classes of transactions based on a determination that their 
books and records are not relevant to jurisdictional rates. Persons who 
believe that they are entitled to exemption may seek such exemption if 
they are not covered by one of the blanket exemptions contained in the 
rule.
Section 1266(b) Exemptions: Non-Traditional Utilities
    16. A number of entities sought clarification with respect to the 
additional exemptions that the Commission adopted in Order No. 667 
pursuant to its discretion under section 1266(b) of PUHCA 2005. With 
respect to the exemption for ``non-traditional utilities,'' APPA/NRECA 
request that the Commission clarify that Sec.  366.3(b)(2)'s exemption 
for ``non-traditional'' utilities without ``captive customers'' will be 
narrowly construed and that, in particular, the fact that a public 
utility has been granted market-based rate authority should not be 
sufficient to qualify it for this exemption.\32\ NRG argues that the 
Commission should clarify the distinction, if any, between the 
exemption granted to holding companies that own only EWGs, and the 
exemption granted to holding companies that own non-traditional 
utilities, and that there is no federal regulatory need to obtain or 
maintain EWG status if the electric utility company that is owned by a 
holding company is also a non-traditional utility. NRG reports that 
banks and other lenders are uncertain about the new exemption, and are 
insisting that NRG seek traditional EWG status for its projects. To 
counteract this trend, NRG asks that the Commission clarify that NRG 
(and other similarly situated entities) need not take any action if NRG 
wants to create a new non-traditional utility that owns generation 
(other than filing for and obtaining market-based rates) or if NRG 
desires to become a holding company of a non-traditional utility that 
does not also qualify as an EWG, QF or power marketer.\33\
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    \32\ APPA/NRECA Rehearing Request at 5, 21.
    \33\ NRG Rehearing Request at 2.
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    17. With respect to APPA/NRECA's request for clarification of what 
is now the Sec.  366.3(b)(2) \34\ exemption for ``non-traditional 
utilities,'' we clarify that the mere fact that a public utility has 
been granted market-based rate authority is not sufficient by itself to 
allow it, or a holding company owning it, to qualify for this 
exemption. We clarify that this exemption requires that the person 
claiming the exemption not have captive customers \35\ and not be 
affiliated with any jurisdictional utility that has captive customers. 
Further, in response to APPA/NRECA's concerns expressed here as well as 
on rehearing of Order No. 669 \36\ with respect to potential cross-
subsidization issues involving jurisdictional transmission services, we 
clarify here consistent with our response on rehearing of Order No. 669 
\37\ that the ``non-traditional utility'' exemption does not apply to 
persons that own Commission-jurisdictional transmission facilities or 
that provide

[[Page 28450]]

Commission-jurisdictional transmission services or to persons that are 
affiliated with persons that own Commission-jurisdictional transmission 
facilities or that provide Commission-jurisdictional transmission 
services.
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    \34\ We note that we have restructured 18 CFR 366.3 to promote 
readability by more clearly tying former 18 CFR 366.3(d) to former 
18 CFR 366.3(b), making them both part of revised 18 CFR 366.3(b).
    \35\ We note that, in Order No. 669-A, issued concurrently with 
this order, we have clarified that a utility is considered to have 
captive customers if it sells electric energy at wholesale or retail 
under cost-based regulation. See Transactions Subject to FPA Section 
203, Order No. 669-A, published elsewhere in this issue of the 
Federal Register, FERC Stats. & Regs. ] 31,213 (2006).
    \36\ See id.
    \37\ See id.
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    18. In response to NRG's request for clarification of the ``non-
traditional utilities'' exemption, we note that there is some overlap 
between the mandatory exemption under section 1266(a) (for EWG, QF and 
FUCO holding companies) and the discretionary exemptions the Commission 
adopted in Order No. 667 pursuant to its authority under section 
1266(b). The statutory exemption is for any person who is a holding 
company solely with respect to EWGs, FUCOs, or QFs, all of which are 
``non-traditional'' utilities. The discretionary exemption for non-
traditional utilities that do not have captive customers, adopted 
pursuant to section 1266(b), additionally covers other non-traditional 
utilities, such as power exchanges, that do not have captive 
customers.\38\ While there may be an overlap in the two exemptions, and 
it is possible that a holding company could qualify for both 
exemptions, we here clarify that the discretionary exemption for non-
traditional utilities that do not have captive customers, adopted 
pursuant to our authority under section 1266(b), is broader in coverage 
than the statutory exemption under section 1266(a).
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    \38\ Power marketers would also be a type of non-traditional 
utility. However, because we have determined that power marketers 
should not be considered ``electric utility companies'' under PUHCA 
2005 (consistent with SEC interpretation under PUHCA 1935), there 
would be no need for an exemption because of ownership of power 
marketers.
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Section 1266(b) Exemptions: Local Distribution Companies
    19. AOG requests that the Commission clarify that holding 
companies, which are holding companies only because they own or control 
exempt local distribution companies (LDCs), are also exempt from Sec.  
366 of the Commission's regulations.\39\ According to AOG, the 
Commission has already determined that ``the books and records of local 
distribution companies that are not regulated by the Commission are not 
relevant to jurisdictional rates.'' \40\ Therefore, if a holding 
company owns only LDCs whose books and records ``are not relevant to 
jurisdictional rates,'' the holding company itself should have no books 
and records that would be ``relevant to jurisdictional rates'' and, 
accordingly, should similarly be exempt from Sec.  366 of the 
Commission's regulations.
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    \39\ AOG Rehearing Request at 4.
    \40\ Id. (citing Order No. 667 at P 132).
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    20. In response to AOG, we note that revised Sec.  366.3(b)(2)(vi) 
of the Commission's regulations provides that any person that is a 
holding company solely with respect to LDCs that are not regulated as 
natural gas companies under the NGA would qualify for this exemption. A 
holding company that owned only such LDCs would be exempted upon 
compliance with the procedures in Sec.  366.4(b) and there is no need 
to amend our regulations.\41\
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    \41\ While not raised on rehearing, we are aware that there may 
be confusion regarding holding companies that have subsidiary 
holding companies. In response, we note that the exemptions or 
waivers from the Commission's regulations under PUHCA 2005 that 
would be granted pursuant to revised 18 CFR 366.3(b) and (c) and 
revised 18 CFR 366.4(b) and (c) would apply to the holding company 
and its subsidiaries. Hence, where one holding company holds 
another, the exemption or waiver that would apply to the parent 
holding company also would apply to the subsidiary holding company. 
Where the parent holding company qualifies for an exemption or 
waiver, the subsidiary holding company would necessarily equally 
qualify; phrased differently, if the subsidiary did not qualify for 
a particular exemption or waiver, then the parent would not qualify 
for that same exemption or waiver either.
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Section 1266(b) Exemptions: Exempt Financing Transactions and 
Transactions Independent of Public Utilities
    21. APPA/NRECA request that the Commission clarify and narrow the 
scope of Sec. Sec.  366.3(b)(3) and (4), i.e., exempt ``financing 
transactions'' and transactions ``independent'' of public utilities. 
APPA/NRECA notes that Sec.  366.3(b)(3) (now revised Sec.  
366.3(b)(2)(iii)) exempts transactions where a:

    Holding company affirmatively certifies on behalf of itself and 
its subsidiaries, as applicable, that it will not charge, bill or 
allocate to the public utility or natural gas company in its holding 
company system any costs or expenses in connection with goods and 
services transactions, and will not engage in financing transactions 
with any such public utility or natural gas company, except as 
authorized by a state commission or the Commission.

According to APPA/NRECA, a too broad construction of the undefined term 
``financing transactions'' might permit a holding company to engage in 
cross-subsidization of unregulated affiliates by the use of guarantees, 
swaps, hedges, derivatives, or various financial arrangements other 
than conventional loans. Moreover, APPA/NRECA contends that access to 
the books and records is still needed to monitor compliance with 
regulatory approvals and to guard against other, non-approved 
transactions. With respect to Sec.  366.3(b)(4)'s (now revised Sec.  
366.3(b)(2)(iv)) exemption for ``transactions between or among 
affiliates that are independent of and do not include a public utility 
or natural gas company,'' APPA/NRECA asserts that the meaning of 
``independent'' and ``include'' is unclear. According to APPA/NRECA, 
this could be interpreted to mean that books and records are exempt 
even if there are other intra-company transactions that ``include'' 
jurisdictional public utilities and which should be subject to the 
Commission's books and records regulations. Under this interpretation, 
a service company could engage in ``independent'' transactions with 
other affiliates that inflate the service company's costs, and then 
that service company could engage in other transactions that allocate 
these inflated costs to a jurisdictional public utility or natural gas 
company. APPA/NRECA thus urges the Commission to clarify that the 
intended exemption is narrow and ``walls off'' or ``ring fences'' the 
jurisdictional public utilities and natural gas companies from bearing 
any costs from, or providing any financial support for, the holding 
company's non-utility operations.
    22. In light of APPA/NRECA's concerns, we will remove the phrase 
``except as authorized by a state commission or the Commission.'' This 
should help address APPA/NRECA's concerns that the provision could be 
interpreted to allow a holding company to engage in transactions 
subject to Commission or state approval but without the Commission 
being permitted to obtain books and records under PUHCA 2005.\42\
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    \42\ A holding company may seek exemption for the class of 
transactions for which it can make the affirmative certification 
required by the regulations. To the extent that a holding company or 
its subsidiaries engage in goods and services or financing 
transactions affecting jurisdictional companies and subject to 
Commission review for purposes of assuring just and reasonable 
rates, the Commission may obtain access to relevant books and 
records.
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    23. However, at this time, we will reject APPA/NRECA's request that 
the Commission clarify and narrow the scope of ``financing 
transactions'' and transactions ``independent'' of public utilities. 
APPA/NRECA here appears to be concerned about the potential for a 
holding company or for unregulated affiliates within a holding company 
system to engage in inappropriate cross-subsidization or affiliate 
abuse. We do not believe that we can clarify or narrow these terms in 
the abstract, but rather we believe that this is an issue best 
addressed on particular facts as they arise. In addition, though, we 
note that

[[Page 28451]]

we will evaluate this issue further in the technical conference. We 
also emphasize that the Commission has substantial, existing authority 
to address such transactions,\43\ and section 1275 supplements that 
authority specifically with respect to the ability of certain holding 
companies and states to obtain review and authorization of the 
allocation of costs for non-power goods and services provided by 
service companies. In addition, APPA/NRECA has not convinced us that 
this exemption would prevent the Commission from guarding against 
inappropriate transactions, because the Commission has broad authority 
under FPA section 301 and NGA section 8 to obtain the books and records 
of public utility and natural gas companies, of any person that 
controls such companies, and of any other company controlled by such 
person, to the extent relevant to jurisdictional rates or activities. 
Finally, with respect to APPA/NRECA's argument that the exemption for 
transactions independent of public utilities should be interpreted to 
``ring fence'' jurisdictional utilities from the holding company's non-
utility operations, we note that in Order No. 667 we rejected the 
requests of commenters such as APPA/NRECA who urged the Commission to 
adopt new rules on cross-subsidization, encumbrances of utility assets, 
diversification into non-utility businesses. We did so because we found 
that PUHCA 2005 does not give the Commission the authority to issue 
additional rules on these matters and because at this time we believe 
the existing rules under the FPA and the NGA are sufficient to prevent 
inappropriate cross-subsidization.\44\ We believe that allowing a 
holding company to certify that any goods and services costs and 
financing transactions will be conducted independent of its public 
utility and natural gas company affiliates represents a further 
voluntary safeguard holding companies may adopt in exchange for this 
exemption.
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    \43\ The Commission's existing ratemaking authorities under 
sections 205 and 206 of the FPA and section 4 and 5 of the NGA 
enable it to protect customers against improper cross-subsidization 
or encumbrances of assets and to disallow from jurisdictional rates 
any imprudently-incurred, unjust or unreasonable, or unduly 
discriminatory or preferential costs resulting from affiliate 
transactions between companies in the same holding company system.
    \44\ Order No. 667 at P 241.
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Waivers: Independent Transmission-Only Companies
    24. APPA/NRECA further contends that Sec.  366.3(c)(3)'s waiver for 
investors in independent transmission-only companies should be 
eliminated.\45\ APPA/NRECA notes that the Commission's rationale for 
this waiver is that ``the rate issues that may arise in connection with 
entities that serve retail customers or that generate or sell 
electricity at wholesale are not present with respect to an independent 
transmission company.'' APPA/NRECA argues that this finding is 
unexplained and that independent transmission companies within holding 
companies may still present rate issues that justify compliance with 
Sec.  366 of the Commission's regulations, e.g., by engaging in cross-
subsidization or affiliate abuse.
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    \45\ APPA/NRECA Rehearing Request at 4.
---------------------------------------------------------------------------

    25. We will reject APPA/NRECA's request that we eliminate the 
waiver for investors in independent transmission companies. APPA/NRECA 
misinterprets the scope of this waiver. APPA/NRECA appears to be 
arguing that a holding company that owned other, non-exempt public-
utility companies, but also had an interest in a jurisdictional 
independent transmission company, would be able to obtain this waiver 
and thereby shield the entire holding company system from PUHCA 2005. 
However, this waiver is, by its terms, only available to a person who 
is a holding company ``solely'' with respect to its interest in an 
independent transmission company; an investor that is also a holding 
company within the meaning of PUHCA 2005 due to its ownership of a 
public-utility company other than the independent transmission company 
would thus not qualify for this waiver. In addition, we reiterate that 
the Commission has authority under sections 205 and 206 of the FPA, as 
well as authority under section 301 of the FPA, to obtain the relevant 
books and records of the independent transmission company, any company 
that controls the independent transmission company, and any other 
company that is controlled by the company that controls the independent 
transmission company.
Waivers: Single-State Holding Company Systems
    26. Section 366.1 of Order No. 667's regulatory text defines the 
term ``single-state holding company system'' as ``a holding company 
system whose public utility operations are confined substantially to a 
single state.'' The term is used in Sec.  366.3(c)(1) to allow single-
state holding company systems to request waiver of the books and 
records requirements of Sec. Sec.  366.21, 366.22, and 366.23. 
Additionally, Sec.  366.5(b), relating to a holding company or state 
commission obtaining a cost allocation determination from the 
Commission pursuant to section 1275(b) of PUHCA 2005 (which involves 
cost allocation of non-power goods and services costs), also makes 
reference to holding company systems ``whose public utility operations 
are confined substantially to a single state;'' but, it does not use 
the defined term ``single-state holding company system.''
    27. Consolidated Edison and Orange and Rockland Utilities (ConEd) 
argue that the operations of generation and marketing affiliates should 
not be considered in evaluating requests for waiver under Sec.  
366.3(c)(1) because the operations of such affiliates are not relevant 
to that waiver and would frustrate the objective of Order No. 667. 
ConEd thus urges the Commission to clarify that only public-utility 
company revenues count for purposes of the single-state holding company 
system waiver.\46\ Edison International (Edison) separately argues 
that, in Sec.  366.5(b) of the Commission's regulations, the Commission 
erred by using the phrase ``public utility operations'' rather than 
``public-utility company operations.'' According to Edison, this error 
potentially eliminates the ability of numerous holding companies that 
had obtained a single-state exemption under PUHCA 1935 from obtaining 
exemption under Sec.  366.5(b) of the Commission's regulations--which 
the narrative text of Order No. 667 plainly indicates should remain 
available to them.\47\
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    \46\ ConEd Rehearing Request at 1.
    \47\ Edison Rehearing Request at 2.
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    28. In light of the comments of ConEd and Edison, we realize that 
there is confusion in Order No. 667's regulatory text with respect to 
the Commission's regulatory ``single state holding company system'' 
waiver pursuant to Sec.  366.3(c)(1) from the accounting, reporting and 
records retention requirements, and the separate statutory exemption 
under PUHCA 2005 section 1275(d) for ``holding company systems whose 
public utility operations are confined substantially to a single 
state.'' \48\ The confusion is compounded by the fact that we defined 
the term ``single state holding company system,'' which is relevant to 
the regulatory waiver pursuant to Sec.  366.3(c)(1), by reference to 
the language used in connection with the separate statutory exemption 
of PUHCA 2005 section

[[Page 28452]]

1275(d). In retrospect, this definition is unnecessary in light of 
other clarifications being made to the regulatory text, and we will 
therefore delete it from the regulations. Our intent in adopting the 
``single state holding company'' regulatory waiver of Sec.  366.3(c)(1) 
from the accounting, reporting and records retention requirements was 
to provide a waiver similar to the exemption provided by the SEC under 
section 3(a)(1) of PUHCA 1935 for ``a holding company and every 
subsidiary thereof which is a `public-utility company' '' if they were 
predominantly intrastate in character and carried on their business 
substantially in a single state in which the holding company and its 
subsidiaries were organized. Further, our intent was to adopt for this 
waiver the 13 percent test previously used by the SEC, i.e., we would 
consider an entity to be a single state holding company system if the 
holding company system derives no more than 13 percent of its ``public-
utility company'' revenues from outside a single state. However, we did 
not include this 13 percent test in the regulatory text. Accordingly, 
we will add to the ``single state holding company system'' regulatory 
waiver of Sec.  366.3(c)(1) specific regulatory text to reflect that a 
holding company system will be deemed to be single state holding 
company system for purposes of the waiver if it derives no more than 13 
percent of its ``public-utility company'' revenues from outside a 
single state.\49\
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    \48\ As we discuss further below, the regulatory waiver of 18 
CFR 366.3(c)(1) considers ''public-utility company'' revenues, while 
the statutory exemption of PUHCA 2005 section 1275(d) considers 
''public utility'' operations and revenues--and PUHCA 2005 and 
consequently our regulations define the two terms differently.
    \49\ If a holding company system has already filed for the 
regulatory waiver of 18 CFR 366.3(c)(1) using the 13 percent of 
''public utility'' revenues standard, it does not need to re-file, 
since it would automatically meet the broader ''public-utility 
company'' revenues standard.
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    29. With respect to the separate PUHCA 2005 section 1275(d) 
statutory exemption, our intent was to use the 13 percent test but 
adapt it to reflect the specific language of section 1275. Section 1275 
clearly states that the exemption is to be for ``any company in a 
holding company system whose public utility operations are confined 
substantially to a single State * * *'' \50\ Thus, under section 
1275(d), if a holding company system has ``public utility'' operations 
(as opposed to ``public-utility company'' operations) confined 
substantially to a single state, then that holding company system or a 
state having jurisdiction over a ``public utility'' in that holding 
company system, may not obtain a Commission determination of service 
cost allocations pursuant to section 1275. Although the SEC's 13 
percent test was used by the SEC in the context of an exemption 
focusing on ``public-utility company'' operations rather than a 
narrower focus on ``public utility'' operations, we believe it is 
reasonable to use such a test for purposes of section 1275(d). Further, 
we believe we are constrained by the specific language of section 
1275(d) to confine the test to ``public-utility'' operations.
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    \50\ Emphasis added. Section 1275(a) provides that the term 
''public utility'' as used in section 1275 has the same meaning as 
in section 201(e) of the FPA. Thus, this section is narrowly focused 
on a subset of public-utility companies (i.e., focused on public 
utilities) and the ability of holding companies and states to obtain 
cost allocation determinations affecting public utilities and their 
customers under this provision. Where public utility operations are 
substantially confined to a single state, presumably a state 
commission would have sufficient ability to make such determinations 
and such determinations would not involve multi-state allocation 
issues among public utilities.
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    30. Accordingly, we grant in part and deny in part the request to 
apply the 13 percent test to ``public-utility company'' operations.
    31. Additionally, as noted above, section 1275(d) of PUHCA 2005 
uses ``public utility'' as defined in section 201(e) of the FPA, which 
is ``any person who owns or operates facilities subject to the 
jurisdiction of the Commission under [Part II of the FPA]'' \51\ i.e., 
facilities used for the transmission of electric energy in interstate 
commerce or for sales of electric energy at wholesale in interstate 
commerce. For purposes of section 1275(d) of PUHCA 2005, this would 
include owners of ``paper facilities'' such as power marketers, as well 
as owners of actual physical facilities, such as owners of generation 
facilities.\52\ Because we realize there could be ambiguity in pinning 
down in which State a power marketer derives its revenues, we clarify 
that the Commission will rebuttably presume that a power marketer's 
sales (and thus its revenues) take place outside a single State. Should 
a company wish to rebut this presumption, it may request a declaratory 
order that the power marketer's sales take place within a single State. 
Barring such a declaratory order, the revenues of affiliated power 
marketers will be counted in determining whether the 13 percent 
threshold for out-of-state revenue is satisfied and thus whether an 
entity qualifies for the section 1275(d) statutory exemption.\53\
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    \51\ This definition would not include facilities that would be 
subject to Commission jurisdiction solely by reason of sections 
206(e) and (f), 210, 211, 211A, 212, 215, 216, 217, 218, 219, 220, 
221, or 222 of the FPA.
    \52\ See Order No. 667 at P 28 (holding that power marketers are 
not ''public-utility companies'' under PUHCA 2005, but are ''public 
utilities'' under the FPA).
    \53\ While, consistent with SEC precedent, we do not treat power 
marketers as ''electric utility companies'' and thus as ''public-
utility companies'' under PUHCA 2005, power marketers are considered 
to be ''public utilities'' and thus their revenues would be taken 
into account with respect to the section 1275(d) statutory exemption 
because that exemption focuses on ''public utility'' operations and 
revenues. Their revenues would not be taken into account with 
respect to the 18 CFR 366.3(c)(1) waiver, however, because that 
waiver focuses on ''public-utility company'' revenues.
---------------------------------------------------------------------------

    32. Finally, we take this opportunity to clarify that a holding 
company system seeking single-state holding company system waiver under 
Sec.  366.3(c)(1) of our regulations must sufficiently justify in its 
FERC-65B filing its claim that the holding company system meets the 13 
percent threshold for out-of-state revenues necessary to qualify as a 
single-state holding company system.
Exemptions and Waivers: Procedural Matters
    33. Finally, APPA/NRECA requests that Order No. 667 be amended to 
provide that no exemption or waiver of a holding company is effective 
except upon the issuance of an affirmative Commission order to that 
effect, rather than allowing a ``notification'' of exemption or waiver 
to become effective in 60 days upon Commission inaction.\54\ APPA/NRECA 
notes that there is no pre-existing body of Commission interpretation 
or precedent under PUHCA 2005 to guide interested parties and that 
timely development of Commission precedent under PUHCA 2005 may not 
occur with this procedure. Moreover, APPA/NRECA emphasizes that this 
procedure invites abuse by holding companies seeking unjustified 
exemptions or waivers, and Order No. 667 provides no remedies when an 
exemption or waiver is erroneously allowed to take effect. Finally, 
APPA/NRECA contends that this procedure threatens to frustrate PUHCA 
2005's central purpose, which is to prevent harm before it occurs, and 
signals a lax rather than vigorous approach to enforcement.\55\
---------------------------------------------------------------------------

    \54\ APPA/NRECA Rehearing Request at 4.
    \55\ Id. at 19.
---------------------------------------------------------------------------

    34. We reject APPA/NRECA's request that Order No. 667 be amended to 
provide that no exemption or waiver is effective except upon the 
issuance of an affirmative Commission order to that effect. Section 
1266 of PUHCA 2005 does not require the Commission to adopt any 
specific procedures to implement the exemptions or waivers. Instead, 
section 1272(1) of PUHCA 2005 authorizes the Commission to issue

[[Page 28453]]

such regulations as it finds necessary or appropriate to implement 
PUHCA 2005. The Commission has had extensive experience in processing 
self-certifications and Commission certifications for QFs under PURPA 
as well as extensive experience processing EWGs within a statutory 
timeframe under the former section 32 of PUHCA 1935, and we believe an 
effective program of exemptions and waivers can be achieved with 
adequate protection of customers--through the process and deadlines we 
have established and the substantive provisions of the FPA and NGA.
    35. We further note that section 1266(a) of PUHCA 2005, in 
particular, is a mandatory exemption and that the Commission has no 
discretion to deny exemption to a person that is a holding company 
solely with respect to QFs, EWGs, or FUCOs.\56\ In fact, as discussed 
further below, the statute appears to contemplate an automatic 
exemption for such holding companies. Thus, any objections regarding 
status of the QFs, EWGs or FUCOs themselves are more appropriately 
addressed in, and can be addressed in, the underlying proceedings in 
which they seek to qualify for such status.\57\
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    \56\ Section 1266(a) of PUHCA 2005 directed the Commission to 
adopt a final rule, within 90 days of the effective date of PUHCA 
2005, exempting from section 1264 of PUHCA 2005 any person that is a 
holding company solely with respect to QFs, EWGs, or FUCOs.
    \57\ We take this opportunity to clarify that, with the 
elimination of Part 365, the filing fee provided for in 18 CFR 
381.801 for applications under Part 365 is no longer applicable. We 
will address revisions to our filing fee regulations in a separate 
proceeding.
---------------------------------------------------------------------------

    36. We clarify that persons that are holding companies with respect 
to QFs, EWGs, or FUCOs are automatically exempt from section 1266(b) 
and do not need to file a notification of holding company status or a 
FERC-65A. Other entities seeking exemption pursuant to section 1266(b) 
of PUHCA 2005 and Sec. Sec.  366.3(b) and 366.4(b) of the Commission's 
regulations, or waiver pursuant to Sec. Sec.  366.3(c) and 366.4(c) of 
the Commission's regulations, however, must file both a FERC-65 
(notification of holding company status) as well as a FERC-65A 
(exemption notification) or FERC-65B (waiver notification). These 
latter filings will be noticed in the Federal Register for public 
comment to allow interested persons the opportunity to raise objections 
with the Commission as to whether the holding company in fact qualifies 
for the claimed exemption or waiver.\58\ In addition, the Commission 
may toll the 60-day period if it concludes that further information is 
necessary to determine whether a person qualifies for the requested 
exemption or waiver.
---------------------------------------------------------------------------

    \58\ Alternatively, we note that they may instead file a 
petition for declaratory order. That filing, too, would be noticed 
in the Federal Register for public comment.
---------------------------------------------------------------------------

    37. And what will now be Sec.  366.4(e) (formerly Sec.  366.4(d)) 
\59\ provides for revocation of an exemption or waiver should the 
person or company no longer qualify for such exemption or waiver. 
Indeed, if circumstances change such that a person or company no longer 
qualifies for exemption or waiver, or no longer conforms to the 
material facts or representations in its submittals to the Commission, 
it can no longer rely on such exemption or waiver.
---------------------------------------------------------------------------

    \59\ The renumbering reflects the addition of a provision 
intended to address material changes in fact subsequent to a grant 
of exemption or waiver. As originally promulgated, the regulations 
did not address such changes.
---------------------------------------------------------------------------

4. Allocation of Costs of Non-Power Goods or Services

    38. In Order No. 667, the Commission allowed centralized service 
companies to sell non-power goods and services to affiliated utilities 
using an ``at cost'' standard. There is a rebuttable presumption that 
such ``at cost'' sales for such non-power goods and services between a 
centralized service company and its affiliates are reasonable. Non-
power goods and services transactions between holding company 
affiliates other than centralized service companies, i.e., service 
companies that are special-purpose affiliates such as a fuel supply 
company or a construction company, continue to be subject to the 
Commission's lower of cost or market standard. Finally, rather than 
require the filing of individual cost allocation agreements, the 
Commission allowed service companies to provide such information in 
their annual Form No. 60 filings.
Allocation of Costs of Non-Power Goods or Services: Filing of 
Agreements
    39. APPA/NRECA requests rehearing of the Commission's decision not 
to require the filing of every individual cost allocation agreement 
between affiliated companies for the purchase of non-power goods and 
services. APPA/NRECA argues that there are two problems with relying on 
information submitted on Form No. 60. First, only traditional, 
centralized service companies are required to file a Form No. 60; 
special purpose service companies would not have to file a Form No. 60 
and could avoid scrutiny of their non-power goods and services 
transactions. Second, the information on a Form No. 60 is not 
sufficient to determine whether costs are just and reasonable. Without 
the filing of cost allocation agreements, APPA/NRECA assert that costs 
may be inappropriately shifted to consumers. Additionally, APPA/NRECA 
note that the filing burden associated with filing cost allocation 
agreements is minimal since the agreements already exist, and would 
merely have to be filed. Alternatively, even if the Commission does not 
require the filing of cost allocation agreements, it should clarify 
that Order No. 667 does not prejudge whether particular cost allocation 
agreements must be filed in a particular ratemaking proceeding.
    40. We disagree with APPA/NRECA that the Commission should require 
the filing of all non-power goods and services cost allocation 
agreements with the Commission. At this time, we believe the burden of 
formal filing for Commission review of every non-power goods and 
service cost allocation agreement far outweighs any benefit that would 
be gained from such filing and review. Importantly, though, the 
Commission retains the authority to require in particular instances the 
filing of such cost allocation agreement should it determine that doing 
so is necessary to protect ratepayers.\60\ In this regard, we retain 
our full authority under sections 4 and 5 of the NGA and sections 205 
and 206 of the FPA to protect customers. As we stated in Order No. 667:
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    \60\ Even if not required to be filed, such agreements also may 
be the subject of discovery in particular proceedings. See 18 CFR 
385.401-11, 385.504(b)(5).

    Furthermore, where appropriate, we will rely on our ratemaking 
authority to examine these agreements or require them to be filed on 
an as-needed basis to determine whether the regulated utility's 
purchases of non-power goods and services were prudently incurred 
---------------------------------------------------------------------------
and just and reasonable.\61\

    41. We also disagree that the information provided on Form No. 60, 
in conjunction with information that would be available from exercise 
of other statutory authority, including audits, would be insufficient 
to ensure just and reasonable rates.\62\ Form No. 60 provides extensive 
information with comparatively little regulatory burden. And we agree 
with APPA/NRECA that the filing of Form No. 60 would not limit the 
Commission's ability to require additional information in a particular 
proceeding.
---------------------------------------------------------------------------

    \61\ Order No. 667 at P 151.
    \62\ Id. at P 152.
---------------------------------------------------------------------------

    42. Finally, as we noted in Order No. 667, we will revisit the 
issue of whether Form No. 60 is sufficient to carry out our statutory 
duties at a future technical conference. While ``[i]t is neither

[[Page 28454]]

necessary nor appropriate to require the submission of additional forms 
at this time,'' we did ``not foreclose the possibility that additional 
filing requirements will later be found necessary.'' \63\
---------------------------------------------------------------------------

    \63\ Id. at P 98.
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Allocation of Costs of Non-Power Goods or Services: Newly Created 
Service Companies
    43. Cinergy requests clarification that both existing and newly 
created centralized service companies will be permitted to use the at-
cost standard for sales of non-power goods and services. Specifically, 
paragraph 169 of Order No. 667 states that ``we will not require 
traditional, centralized service companies currently using the SEC's 
at-cost standard to comply with the Commission's market standard'' 
(emphasis added). If this is not what the Commission intended, Cinergy 
requests rehearing and asserts that no distinction should be made 
between an existing centralized service company and a newly-formed 
centralized service company. Cinergy adds that it expects to create 
such a new centralized service company, once its merger with Duke 
Energy is completed, that will offer centralized services to both 
companies.
    44. In response to Cinergy, it is the type of service company--not 
the date of its creation--that will govern whether the particular 
service company will be subject to an ``at cost'' or a ``lower of cost 
or market'' standard. Hence, we will not treat newly-formed centralized 
service companies differently merely because they are newly-formed; all 
centralized service companies will be subject to an ``at cost'' 
standard.
Allocation of Costs of Non-Power Goods or Services: Definition of 
``Service Company''
    45. ConEd requests clarification that only service companies that 
provide services to traditional utilities having cost-based rates 
should fall within the centralized service company category. ConEd 
notes that service companies may also provide services exclusively to 
generation or marketing affiliates that do not have cost-based rates. 
Since such generation and marketing affiliates typically sell power and 
energy at m