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FERC: Holding Companies Must Report PUC Investments

FERC put holding companies on notice when it denied a request by Horizon Asset Management for a disclaimer of jurisdiction under the Federal Power Act (FPA) with respect to investments in public utility company (PUC) securities Thursday.

By the same 5-0 vote the Federal Energy Regulatory Commission (FERC) granted, subject to certain conditions, New York City-based Horizon's request for a blanket authorization under the FPA to acquire voting securities of less than 10% for any individual investor account and less than 20% cumulatively in PUCs or public utility holding companies for a period of three years. Because of the Commission's "previous lack of clarity regarding its interpretation of the scope" of the rule, no sanctions were imposed against Horizon's failure to file for prior approval of previous PUC-related stock acquisitions, FERC said.

"This order constitutes notice that we consider these types of transactions to be jurisdictional," said FERC Chairman Joseph. T. Kelliher. "However, in order to give the regulated community an opportunity to come into compliance, the order allows similar investment-advisor holding companies 90 days to make filings and come into compliance." Failure to make timely filings could result in potential civil penalties or other sanctions, Kelliher said.

Separately, FERC clarified the requirement under which a company that receives certain exemptions or waivers under the Public Utility Holding Company Act of 2005 (PUHCA 2005) must notify the Commission of material changes in facts that may affect the exemption or waiver. Commissioners said that when a holding company that has received a waiver or exemption of regulatory requirements under PUHCA 2005, it must notify FERC each time it acquires 10% or more of any additional PUC or public utility holding company. Those filings must be made with FERC within 45 days of the date of the order's publication in the Federal Register.

The FPA requires prior FERC authorization for holding companies to acquire certain securities with values in excess of $10 million of transmitting utilities, electric utility companies or holding company systems containing such entities. The Energy Policy Act of 2005 (EPAct) and the repeal of the PUHCA of 1935 expanded FERC's jurisdiction over securities acquisitions involving the utility industry.

In December 2005 FERC finalized rules to implement a federally mandated repeal of the PUHCA of 1935 and enactment of PUHCA 2005 (see NGI, Dec. 12, 2005). The final rules modified the scope of a FERC-authored ruled that reduced regulatory burdens by limiting filing requirements to those needed to protect against inappropriate cross-subsidization, and by providing exemptions and waivers for persons and transactions not relevant to jurisdictional rates. The EPAct repealed the 70-year-old PUHCA, which established a regulatory regime overseen by the U.S. Securities and Exchange Commission, and replaced it with a new statute focused on increased access to holding company books and records to assist FERC and state utility regulators in protecting customers of regulated utilities.

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