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Investment Firm Grilled on Request for No Limit on Utility Stocks

FERC has its doubts about granting Franklin Resources Inc. blanket authority to buy unlimited amounts of securities in U.S. traded utilities for its clients, the Commission revealed, recently labeling the investment firm's application deficient and sending the company, generally known as Franklin Templeton Investments, a detailed and extensive list of questions to be answered (EC08-111).

For instance, how does the investment firm qualify to be treated in the same manner as a bank, which is regulated by the Federal Reserve or the Office of the Comptroller of the Currency, the Federal Energy Regulatory Commission (FERC) queried. The company, which claimed $580.2 billion in assets in 600 mutual funds in its July filing, said it should receive the same blanket authority granted to the banks with which it competes.

FERC asked for a detailed explanation of how the company's subsidiaries competed regularly with banks and other investment houses and why the blanket authority was necessary for that competition.

The Commission questioned why the currently available blanket authority to acquire up to 10% of a company's voting stock is not sufficient. And if the firm acquires more than 50% of the voting rights of a public utility stock, how is the public interest to be protected? FERC noted the company said its Franklin Mutual Advisers takes a "more activist" shareholder role, and asked for a definition of "more activist."

"Please explain why the Commission should not be concerned about harm to the public interest when Applicants take a 'more activist role' by talking with management of the utilities whose securities they hold, specifically when Applicants discuss issues of corporate management or strategic direction," FERC stated.

The company's statement that no group would exercise any actual control over day-to-day management or operations of a utility begs the question of "why you limit the prohibition on exercising control to simply day-to-day management or operations of a public utility."

Franklin Templeton also was asked to provide a detailed explanation of how the ability to acquire an unlimited number of public utility shares would enhance its investment strategies, and to provide the number of times since January 2006 when its holdings of a public utility's securities exceeded 8% of the outstanding shares.

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