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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 250 and 259

[Release No. 35-26667; File No. S7-12-95]

RIN 3235-AG46

Exemption of Acquisition By Registered Public-Utility Holding
Companies of Securities of Nonutility Companies Engaged in
Certain Energy-Related and Gas-Related Activities; Exemption of
Capital Contributions and Advances to Such Companies 

AGENCY:  Securities and Exchange Commission. 

ACTION:  Final rule.

SUMMARY:  The Commission is adopting new rule 58 and conforming

amendments to rules 45(b) and 52(b) under the Public Utility

Holding Company Act of 1935 ("Holding Company Act" or "Act"). 

Rule 58 exempts from the requirement of prior Commission approval

a direct or indirect acquisition by a registered holding company

or its subsidiary of an interest in an "energy-related company,"

as defined in the rule, subject to certain limitations and

reporting requirements; and by a gas registered holding company

or its subsidiary of an interest in a "gas-related company," as

defined in the rule, subject to certain reporting requirements. 

The rule and related rule amendments eliminate unnecessary

regulatory limitations on investments in certain businesses that

are closely related to the core utility business of the

registered system while establishing disclosure and reporting

requirements that promote the public interest and serve to

protect consumers and investors.  

EFFECTIVE DATE:  [Insert date 30 days after publication in the

Federal Register.]
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FOR FURTHER INFORMATION CONTACT:  Bonnie Wilkinson, Assistant

Director, Martha Cathey Baker, Senior Special Counsel, Sidney L.

Cimmet, Senior Special Counsel, or Robert P. Wason, Chief

Financial Analyst, all at (202) 942-0545, Office of Public

Utility Regulation, Division of Investment Management, Securities

and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.

20549.

SUPPLEMENTARY INFORMATION:  The Commission today is adopting rule

58 and related amendments to rule 45(b) and rule 52(b) (17 CFR

250.45(b) and 250.52(b)) under the Public Utility Holding Company

Act of 1935 (15 U.S.C. 79a et seq.).  The Commission issued a

release proposing rule 58 and the amendments to the existing

rules on June 20, 1995.-[1]-  Subject to certain conditions,

rule 58 provides an exemption, pursuant to section 9(c)(3) of the

Act, from the requirement of prior Commission approval under

sections 9(a)(1) and 10, for acquisitions by registered holding

companies and their subsidiaries of securities of companies

engaged in activities with which the Commission is familiar as a

result of its administrative experience and which are so closely

related to the ordinary course of the utility business as not to

require case-by-case analysis under sections 9(a)(1) and 10.

     Rule 58 exempts from the requirement of prior approval the

acquisition by a registered holding company or its subsidiary

company of any securities of an energy-related company, subject


---------FOOTNOTES----------
     -[1]-  Holding Co. Act Release No. 26313 (June 20, 1995), 60
FR 33642 (June 28, 1995) ("Proposing Release").
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to certain limitations and reporting requirements.  The rule

defines an energy-related company as one that derives, or will

derive, substantially all of its revenues from one or more

activities specifically enumerated in the rule.  The exemption

provided by the rule will be available only if the aggregate

investment by the registered holding company and its subsidiaries

in energy-related companies does not exceed the greater of $50

million or 15% of consolidated capitalization.

     Rule 58 also exempts from the requirement of prior approval

the acquisition by a gas registered holding company or its

subsidiary company of any securities of a gas-related company,

subject to certain reporting requirements.  The rule defines a

gas-related company as one that derives, or will derive,

substantially all of its revenues from one or more activities

permitted under the Gas Related Activities Act of 1990 ("GRAA").

     Rule 58 requires a registered holding company that seeks to

rely upon the rule to file with this Commission and each state

commission having jurisdiction over the retail rates of the

registered system operating companies a quarterly report

disclosing acquisitions pursuant to the rule and certain other

information required by proposed Form U-9C-3.  The reporting

requirements are intended to enable the Commission and the state

and local regulatory authorities to monitor acquisitions pursuant

to the rule, including any transactions with rule 58 companies

involving the operating companies in registered systems.

     The Commission is also adopting amendments to rule 45(b) and
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rule 52(b), which concern financings by registered system

companies, in each case to conform the rules to the limitations

of rule 58.  Rule 45(b) is amended to qualify the exception that

the rule creates to the requirement of Commission approval under

section 12(b) and rule 45(a) for capital contributions and open

account advances without interest to a subsidiary company.  As

amended, the exception of rule 45(b) is available if the

aggregate amount of such financing transactions on behalf of a

subsidiary energy-related company conforms to the limitations of

rule 58.  Rule 52(b) is similarly amended to qualify the

exemption that the rule provides from the requirement of prior

Commission approval under sections 6(a) and 7 for securities

issued by energy-related subsidiary companies to associate

companies.  

I.   Introduction

     This rulemaking arises in the broad context of nonutility

diversification by registered gas and electric public-utility

holding companies.  Section 9(a)(1) of the Holding Company Act

requires prior Commission approval under the standards of section

10 for a direct or indirect acquisition by a registered holding

company of "any securities" or "any interest in any other

business," i.e., any nonutility interest.-[2]-  Section

10(c)(1) precludes approval of an acquisition that would be


---------FOOTNOTES----------
     -[2]- The Commission has read the latter phrase to encompass
any  arrangement that  entails the  acquisition of  a substantial
interest in a nonutility business undertaking.  See, e.g., Public
Service Co. of Oklahoma, 45 S.E.C. 878, 883-4 (1975). 
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"detrimental to the carrying out of the provisions of section

11."  Section 11, described in the legislative history of the Act

as the "very heart" of the Act,-[3]- requires the Commission

to confine the nonutility interests of such companies to those

that are "reasonably incidental, or economically necessary or

appropriate to the operations of [an] integrated public-utility

system."-[4]-  The Commission has interpreted the provisions

of section 11 to reflect a Congressional policy against

nonutility activities that bear no operating or functional

relationship to the utility operations of the registered

system.-[5]-  This interpretation was intended to focus the

attention of the registered holding company on the needs of its

---------FOOTNOTES----------
     -[3]- S. Rep. No. 621, 74th Cong., 1st Sess. (1935) ("Senate
Report") at 11.

     -[4]- Section 11(b)(1) of the Act.  Section 11(b)(1) further
provides  that the  Commission may  so characterize  a nonutility
interest that it  finds to  be "necessary or  appropriate in  the
public  interest or for the  protection of investors or consumers
and not detrimental to the proper functioning of such system. . .
."

The interests  of investors and consumers and the public interest
are the protected interests  under the Holding Company Act.   The
Commission has  interpreted the  public interest standard  of the
Act to extend to the interest in a sound gas and electric utility
industry.  See Eastern Utilities Assocs., Holding Co. Act Release
No. 26232 (Feb. 15, 1995).  

     -[5]- See generally Michigan Consolidated Gas Co., 44 S.E.C.
361,  363-66  (1970),  aff'd,  444  F.2d  913  (D.C.  Cir.  1971)
(rejecting proposed investment  in low income housing  projects).
See  also CSW  Credit, Inc.,  Holding Co.  Act Release  No. 25995
(Mar. 2, 1994) (rejecting proposed expansion of transactions with
nonassociate  companies by  subsidiary  engaged  in factoring  of
utility accounts receivable).   By its terms, section  11 applies
only  to registered holding companies.   The Commission has never
determined  the  limits  on  diversification  by  exempt  holding
companies.
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operating utilities, and thereby protect consumers and investors

against the risks that might be associated with unrelated

businesses.-[6]-

     Section 9(c)(3) of the Act provides an exemption from the

requirements of section 9(a)(1) for the acquisition of "such

commercial paper and other securities, within such limitations as

the Commission may by rules and regulations or order prescribe as

appropriate in the ordinary course of business of a registered

holding company or subsidiary company thereof and as not

detrimental to the public interest or the interest of investors

or consumers."  The Commission has previously issued orders under

section 9(c)(3) exempting from section 9(a)(1) acquisitions of

small amounts of securities of local industrial development

corporations, affordable housing projects, and venture capital

concerns, among others.-[7]-  The Commission has also

adopted rule 40(a)(5) under section 9(c)(3) to exempt such


---------FOOTNOTES----------
     -[6]- Section 11 was intended "simply to provide a mechanism
to  create conditions  under  which effective  Federal and  State
regulation  will  be possible."    Senate Report  at  11.   As an
historical matter, the  statute led  to the  refashioning of  the
structure and the business practices of an entire industry.  See,
e.g., Joel Seligman, The Transformation of Wall Street: A History
of the  Securities and  Exchange Commission and  Modern Corporate
Finance (rev. ed. 1995).

     -[7]- See, e.g., Hope Gas, Inc., Holding Co. Act Release No.
25739  (Jan. 26,  1993) and  Georgia Power  Co., Holding  Co. Act
Release No.  25949 (Dec. 15,  1993) (securities of  local venture
capital companies);  Georgia Power  Co., Holding Co.  Act Release
No. 26220 (Jan. 24, 1995) and  East Ohio Gas Co., Holding Co. Act
Release  No.  25046 (Feb.  27,  1990)  (securities of  affordable
housing  partnerships);  Potomac  Edison  Co.,  Holding  Co.  Act
Release No. 25312  (May 14, 1991) (shares  of for-profit economic
development corporation).  
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acquisitions from the requirements of section 9(a)(1), provided

that an affiliate relationship does not result, and subject to

certain annual dollar limitations.-[8]-  The Commission has

noted that section 9(c)(3) may not be used to circumvent section

11(b)(1)'s prohibition of the acquisition of an interest in a

business unrelated to the core utility business.-[9]- 

     As noted in the Proposing Release,-[10]- registered

holding companies have filed numerous applications in recent

years seeking authorization to engage in nonutility activities

that the companies contend complement, or are natural extensions

of, the evolving gas and electric industries.  In considering

these applications, the Commission has attempted to balance the

need for regulatory change due to industry developments with the

need for continued protection under the Act of the public

interest and the interest of investors and consumers.-[11]- 

The concept of a functional relationship has been expanded in

some cases, in a manner consistent with the purposes and


---------FOOTNOTES----------
     -[8]- Under  rule 40(a)(5), a holding  company or subsidiary
may  acquire up  to  $5 million  annually  of the  securities  of
economic development companies created  under special state  laws
promoting  economic development, and up to $1 million annually in
local industrial or nonutility enterprises.

     -[9]- Michigan Consolidated Gas Co., 44 S.E.C. at 366.

     -[10]- 60 FR at 33643.

     -[11]- The Commission in some instances  imposed percentage,
geographic or  other limitations  upon transactions on  behalf of
nonassociate  companies.    These  limitations  were  intended to
ensure that the particular  nonutility interest would continue to
benefit the  integrated system  primarily and thereby  conform to
the functional relationship requirement.
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limitations of the Act, and the Commission has permitted some

activities that would benefit the registered system in ways less

tangible and direct than those considered and approved in orders

of previous years.  In some cases the Commission approved as part

of this development extensive transactions with nonassociate

companies and declined to limit the transactions to the

particular service territory of the registered system utilities. 

To this extent, the Commission implicitly correlated the

functional relationship test with changes in the

industry.-[12]-  

     Congress has enacted a number of important legislative

measures to facilitate acquisitions by registered holding

companies of interests to which section 11 was perceived to

create barriers.  In some instances, the legislation treated


---------FOOTNOTES----------
     -[12]-  The  Commission took  a  more  flexible approach  to
functional relationship in Southern  Co., Holding Co. Act Release
No. 26211  (Dec. 30, 1994).   In that case,  Southern proposed to
develop  a  communications system  to  provide  services to  both
system  companies   and  nonassociates.    While   only  a  small
additional investment  in the  system was required  to facilitate
nonassociate transactions,  a majority  of the revenues  from the
system could ultimately be derived from  these transactions.  The
Commission  approved the  proposal,  stating  that  the  relative
investment for associate and nonassociate purposes is relevant to
a determination of a functional relationship.  Alternatively, the
Commission found  a functional relationship  existed because  the
nonutility interest being acquired (1) would involve  the sale or
lease of products or  skills of some complexity developed  by the
holding company  at considerable expense  for the benefit  of its
utility subsidiaries and not readily available to the rest of the
public from other sources; (2) would  generally require little or
no  further investment  by  the holding  company;  and (3)  would
permit  the amortization  of  product development  expenses  with
little  or  no risk  (citing Jersey  Central  Power &  Light Co.,
Holding Co. Act Release No. 24348 (Mar. 18, 1987), as approved in
CSW Credit, Inc., note 5 above).  
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acquisitions of essentially utility interests as nonutility

acquisitions for purposes of the Act, so as to avoid the

integration requirements of section 11.-[13]-  In other

instances, the legislation permitted essentially nonutility

activities that were either closely related to core operations or

otherwise deemed appropriate for participation by registered

holding companies.  An example of recent legislation relates to

nonutility activities involved in the supply of natural gas.

     In 1990, Congress enacted the Gas Related Activities Act to

permit a gas registered holding company to engage in

transportation, marketing, storage and other nonutility gas-

related activities that are not functionally related to the

company's business.-[14]-  The GRAA provides that an

acquisition of an interest in a company that engages in certain

gas-related activities, including storage, transportation and

wholesale sales, is deemed to meet the requirements of section

11(b)(1) of the Act.  The GRAA further provides that an

acquisition of an interest in a company that engages in other

activities relating to the supply of natural gas is deemed to

meet the requirements of section 11(b)(1), if the Commission

finds that the acquisition is in the interest of consumers of the

---------FOOTNOTES----------
     -[13]- Under  the Public Utility Regulatory  Policies Act of
1978 ("PURPA"),  16 U.S.C.   824a-3, and related  legislation, a
registered holding company can acquire an interest in "qualifying
facilities" ("QFs"),  as defined in the  regulations under PURPA,
that are unrelated to its core utility operations.  See  also the
Energy Policy Act of 1992, discussed below.

     -[14]-  Pub. L. No. 101-572, 104 Stat. 2810 (Nov. 15, 1990),
codified as a note to section 11 of the Act.
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holding company system and is not detrimental to those consumers

or to the proper functioning of the registered

system.-[15]-  

     In 1992, Congress acted to permit both gas and electric

registered holding companies to acquire interests in cogeneration

and small power production facilities, wherever located, and to

market and broker electric power through affiliated exempt

wholesale generators ("EWGs").-[16]-  In 1992, Congress

also enacted legislation to promote the development of

alternative powered vehicles as a part of a national energy

policy to reduce automobile emissions.  The legislation permits

gas registered holding companies to engage in activities related

to vehicular natural gas, as defined.-[17]- 

     As a result of Congressional action, combined with

initiatives of the Federal Energy Regulatory Commission ("FERC")

and the state and local ratemaking authorities, the pace of

change in the gas and electric utility industry is accelerating. 

Today, the gas industry is largely deregulated and the electric

---------FOOTNOTES----------
     -[15]-  See,  e.g., Columbia  Gas  System,  Holding Co.  Act
Release  No. 25802  (Apr.  22, 1993)  (authorizing subsidiary  to
engage in  marketing of natural gas).   Section 2(b) of  the GRAA
requires  the  Commission  to   determine  whether  the  proposed
activities will benefit both the retail and the wholesale utility
customers of the registered system.

     -[16]- Energy  Policy Act, Pub.  L. 102-486, 106  Stat. 2776
(1992).   These activities of  EWGs are limited  primarily to the
sale of electric power for resale.  

     -[17]- See Articles IV, V and VI, Energy Policy Act of 1992,
Pub. L.  102-486, 106  Stat. 2777 (1992)  (codified as a  note to
section  2).   These  legislative developments  are discussed  at
greater length in the Proposing Release.  60 FR at 33644.
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industry is undergoing a similar process.-[18]-  In

addition to increasing competition at the wholesale level, retail

electric competition is developing more rapidly than anticipated,

due to state efforts.-[19]-  Utilities and other suppliers

of energy appear poised to compete in retail markets.-[20]- 


---------FOOTNOTES----------
     -[18]-  See  generally  The  Regulation   of  Public-Utility
Holding  Companies,   Report  of  the   Division  of   Investment
Management,  Securities  and   Exchange  Commission  (June  1995)
("Report"),  at  19-22, 26-27  (surveying  recent regulatory  and
other developments in  the electric and  gas industries).   Among
other things, the Report  notes that following the Energy  Policy
Act, the FERC has engaged in a series of initiatives to encourage
the development of competitive energy markets.  Id. at  23.  More
recently, on April 24, 1996, the FERC adopted Order No. 888, FERC
Stats.  & Regs.    31,036, which  represents a major  step in the
effort to increase competition in the generation and transmission
segments of the electric industry.

     -[19]- See, e.g., "State Regulators Debate Taking a Stand on
National Retail  Wheeling Legislation",  Energy Report  (March 4,
1996)  (describing state  initiatives  and possible  support  for
federal legislation establishing retail  wheeling).  At the state
level, for  instance, New Hampshire  has adopted a  pilot program
under  which  each New  Hampshire  utility  must allow  customers
representing  three  percent of  peak  load  to  have  access  to
alternative suppliers of electricity  for two years, beginning on
or  about  May  28, 1996.    Order  of the  New  Hampshire Public
Utilities  Commission on  the  Retail Competition  Pilot  Program
Establishing  Final Guidelines  and Requiring  Compliance Filings
(Order No.  22,033, dated Feb. 28, 1996).   Other states, such as
Massachusetts, Rhode Island  and Illinois, are also  implementing
or considering programs to promote retail competition.

     -[20]-  The Commission  has  authorized  registered  holding
companies  to engage,  through  nonutility subsidiaries,  in  the
retail marketing of electric power  in specific states that  have
implemented plans and programs for competition in retail electric
markets,  see, e.g.,  Eastern Utilities Assocs., Holding Co.  Act
Release No.  26519 (May  23, 1996)  (authorizing retail  sales of
electric power pursuant  to pilot programs  in New Hampshire  and
Massachusetts)   and,  more   recently,  has   authorized  retail
marketing  of both electric power and natural gas on a nationwide
basis,  subject to  compliance with  applicable state  law.   SEI
Holdings,  Inc., Holding  Co. Act  Release No.  26581 (Sept.  26,
1996).
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As a result of these developments, the contemporary gas and

electric industries no longer focus solely upon the traditional

production and distribution functions of a regulated utility, but

are instead evolving toward a broadly based, competitive, energy

services business.-[21]-

     As discussed previously, the Commission has sought to

respond to developments in the industry by expanding its concept

of a functional relationship in a manner consistent with the

purposes and limitations of the Act.  In several recent filings,

the Commission has been requested to reconsider some

administrative restrictions employed in the past.  In approving

these requests, the Commission determined, as required by the

Act, that its action would not be detrimental to the interests

protected under the Act.  The Commission suggested that various

considerations, including developments in the industry, the

Commission's familiarity with the particular nonutility

activities at issue, the absence of significant risks inherent in

the particular venture, the specific protections provided for

consumers and the absence of objections by the relevant state

regulators, made it unnecessary to adhere rigidly to the types of

---------FOOTNOTES----------
     -[21]- The Commission acknowledged these developments in the
Proposing Release, 60 FR at 33643, and, again, in a recent  order
authorizing  a  gas  registered  holding company  to  acquire  an
interest  in a  partnership  formed to  engage  in the  wholesale
brokering  and marketing  of natural  gas, electricity  and other
fuels.  Consolidated Natural Gas Co., Holding Co. Act Release No.
26512 (Apr. 30, 1996).   The order noted the  growing competition
among various  companies, including exempt  holding companies, as
well as stand-alone  utilities and other companies not subject to
the Act, to  meet increasing customer demand for a  full range of
energy options. 
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administrative measures discussed above.-[22]-  Further, a

1995 Commission staff report recommended that the Commission

replace the use of bright-line limitations with a more flexible

standard that would take into account the risks inherent in the

particular venture and the specific protections provided for

consumers.-[23]-

     Finally, after the issuance of the Proposing Release,

Congress enacted legislation amending the Act to permit

registered holding companies, without prior Commission approval

under sections 9(a)(1) and 10, to participate in a broad range of

telecommunications activities through a special purpose

subsidiary, an "exempt telecommunications company"

("ETC").-[24]-  Once an entity is certified as an ETC by

the Federal Communications Commission, acquisition and retention

by a registered holding company of an interest in the entity is

exempt from substantive requirements under the Holding Company




---------FOOTNOTES----------
     -[22]- See, e.g., Consolidated  Natural Gas Co., Holding Co.
Act  Release  No.   26512  (approving  wholesale  marketing   and
brokering of  natural gas,  electricity and other  fuels, without
percentage  limitations); Eastern Utilities  Assocs., Holding Co.
Act Release No. 26232  (removing percentage limitation previously
placed upon demand-side management and energy management services
business of  registered holding  company); Southern  Co., Holding
Co.  Act Release  No.  26211  (considering,  in assessment  of  a
functional  relationship, the  relative investment  for associate
and nonassociate companies). 

     -[23]- Report at 81-87, 91-92.

     -[24]- Telecommunications Act of  1996, Pub. L. 104-104, 110
Stat. 56 (1996)  ("Telecommunications Act"), codified  as section
34 of the Act.
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Act.-[25]-  As a result of this legislation, the provisions

of proposed rule 58 concerning telecommunications activities are

no longer needed.

     The Commission believes that the realities of the

contemporary gas and electric industries, and its experience in

the administration of sections 9 and 10 of the Act, permit a

recognition that certain activities are an integral part of the

contemporary utility business, and so may be deemed to be

activities "in the ordinary course of business" of a registered

holding company within the meaning of section 9(c)(3) of the Act. 

Rule 58 identifies such activities.  The rule is variously

subject to qualifications and limitations that are intended to

ensure that acquisitions pursuant to the rule are appropriate in

the ordinary course of business, as contemplated by section

9(c)(3), are consistent with prior orders under section 9(a)(1)

and 10, and are not detrimental to the protected

interests.-[26]- 

II.   Proposed Rule 58

---------FOOTNOTES----------
     -[25]- The Telecommunications Act does not provide that ETCs
themselves are exempt from regulation under  the Act.  See   34.
However, the  law contemplates  that the role  of the  Commission
will consist largely of monitoring telecommunications investments
of registered holding companies.  The Commission is authorized to
require reporting of investments in, and activities of, ETCs that
are  likely to  have  a  material  impact  on  the  financial  or
operational  condition of  a registered  holding company.   See 
34(f).

     -[26]-  As  noted  in  the  Proposing  Release,  rule 58  is
intended largely to encompass investments in companies engaged in
activities  of the  same  or substantially  similar character  as
those  approved  in  previous  orders  of  the  Commission  under
sections 9(a)(1) and 10.  60 FR at 33648.
==========================================START OF PAGE 15======

     Rule 58 is intended to facilitate investments by registered

holding companies in energy-related and gas-related companies. 

Acquisitions pursuant to the rule are considered to be

"appropriate in the ordinary course of business" within the

meaning of section 9(c)(3), and are thus exempt from the

requirement of prior Commission approval under sections 9(a)(1)

and 10. 

     The Commission received comment letters from, or on behalf

of, eleven registered holding companies, one exempt holding

company, one industry trade association, and one local regulatory

authority.-[27]-  With the exception of the Council of the

City of New Orleans ("New Orleans"), all commenters support

adoption of the rule-[28]- and, in many cases, propose

---------FOOTNOTES----------
     -[27]-   The  registered  holding companies  that  submitted
comments are Allegheny Power System, Inc. ("Allegheny"), American
Electric  Power Company,  Inc.  ("AEP"), Central  and South  West
Corporation ("CSW"), Cinergy Corp. ("Cinergy"),  The Columbia Gas
System,  Inc.  ("Columbia"),  Consolidated  Natural  Gas  Company
("Consolidated"), Eastern Utilities  Associates ("EUA"),  Entergy
Corporation  ("Entergy"),  General  Public Utilities  Corporation
("GPU"),  Northeast  Utilities  ("Northeast")  and  The  Southern
Company ("Southern").  The  exempt holding company that submitted
comments  is Wisconsin  Energy Corporation  ("Wisconsin Energy"),
and  the industry  association  is the  American Gas  Association
("AGA").   The  local  regulator that  submitted comments  is the
Council of the City of  New Orleans.  Copies of the  comments are
available for inspection in File No. S7-12-95 in the Commission's
public reference room.

     -[28]-  See, e.g.,  Comments of AEP  (the rule  would reduce
regulatory  burdens  on registered  systems  and  permit them  to
compete  in   the  energy  industry);  and   Columbia  (the  rule
eliminates   unnecessary   and  costly   regulatory   burdens  on
registered  systems).   Some  commenters also  note that,  beyond
adoption  of rule  58, the  Commission should  provide registered
holding  companies with  the  flexibility to  engage in  utility-
related businesses  without limitation.   See, e.g.,  Comments of
                                                   (continued...)
==========================================START OF PAGE 16======

additional changes to expand the 

rule.-[29]-  New Orleans opposes adoption of the

rule,-[30]- and requests, in the alternative, a more

restrictive rule.  The comments received on various aspects of

the rule are discussed below.  The Commission is adopting rule 58

and the conforming amendments to rules 45 and 52 substantially as

proposed, but with a number of clarifications.

     A.   Investments in energy-related companies


---------FOOTNOTES----------
     -[28]-(...continued)
AGA  (section  11 should  be  broadly interpreted  to  permit gas
systems  to   enter  into  any   business  involving  production,
transmission,  dissemination   or  marketing   of  any   form  of
consumable  energy  or any  business  or operation  based  on the
facilities,   resources   or   expertise   from   the   company's
operations); and  CSW  (restrictions on  diversification  prevent
registered systems from engaging in businesses that would benefit
customers  and investors  and impede  efficient evolution  of the
electric utility industry).

     -[29]- For example, one commenter notes that the rule should
generally be more flexible, so as to accommodate changes that may
arise as  the restructuring  of the electric  industry continues.
Comments  of Wisconsin  Energy.   The Commission  notes, however,
that  various issues, such  as those  that surround  the possible
disaggregation of  utility assets and  horizontal integration  of
utility  functions,  are  beyond the  scope  of  a  rule that  is
intended  to  exempt nonutility  interests  that are  commonplace
today  and closely  related to  the core  utility business.   The
Commission  continues to  examine the  issues raised  by industry
restructuring,  and will undertake  any necessary  or appropriate
rulemaking or other administrative action in the future.

     -[30]-  New Orleans opposes the rule on many grounds.  Among
other  things,  New Orleans  asserts  that  the rule  constitutes
"deregulation  of  nonutility  investment by  registered  holding
companies [that] is unlawful and not in the public interest."  It
further  asserts  that  the  rule  does  not  adequately  protect
consumers from "diversification risks and failures which are well
known  and documented in this industry."  New Orleans states that
only the Commission has the authority to regulate diversification
and  that it  has a  "duty to  protect consumers"  in this  area.
Comments of New Orleans at 3-4.
==========================================START OF PAGE 17======

     Rule 58(a)(1) exempts from the requirement of prior

Commission approval under sections 9(a)(1) and 10, pursuant to

section 9(c)(3), the acquisition by a registered holding company

or its subsidiary company of securities of an "energy-related

company;" provided, that aggregate investment (as defined) in

such companies does not exceed the greater of 15% of consolidated

capitalization or $50 million.  Investments made prior to

effectiveness of the rule are excluded for purposes of

calculating the investment limitations.

     The Proposing Release defines an "energy-related company" in

terms of the activities in which it may engage.  Specifically, as

proposed, the rule would define an energy-related company as one

that engages in:  (1) one or more of various categories of

specific activities set forth in the rule, described below, and

(2) such other nonutility activities as the Commission may from

time to time approve by order upon application under sections 9

and 10, and, so doing, designate as energy-related for purposes

of the rule.  Rule 58 requires that an energy-related company at

all times derive substantially all of its revenues from the

activities designated in the rule.

     The energy-related activities specified in subsection (b)(1)

of the rule as proposed were:

          (1) the rendering of energy conservation and demand-
     side management services;

          (2) the development and commercialization of
     electrotechnologies related to energy conservation, storage
     and conversion, energy efficiency, waste treatment,
     greenhouse gas reduction, and similar innovations;
==========================================START OF PAGE 18======

          (3) the manufacture, conversion, sale and servicing of
     electric and compressed natural gas powered vehicles and
     ownership and operation of related refueling and recharging
     equipment;

          (4) the sale, installation, and servicing of electric
     and gas appliances for residential, commercial and
     industrial heating and lighting;

          (5) the brokering and marketing of energy commodities,
     including but not limited to electricity or natural or
     manufactured gas;

          (6) the production, conversion, and distribution of
     thermal energy products, such as process steam, heat, hot
     water, chilled water, air conditioning, compressed air and
     similar products; alternative fuels; and renewable energy
     resources;

          (7) the sale of technical, operational, management, and
     other similar kinds of services and expertise, developed in
     the course of utility operations in such areas as power
     plant and transmission system engineering, development,
     design and rehabilitation; construction; maintenance and
     operation; fuel procurement, delivery and management;
     environmental licensing, testing and remediation; and other
     similar areas;

          (8) the ownership or operation of QFs, and facilities
     necessary or incidental thereto, including thermal energy
     utilization facilities purchased or constructed primarily to
     enable the qualifying facility to satisfy the useful thermal
     output requirements under PURPA;

          (9) the ownership or operation of fuel procurement,
     transportation, handling and storage facilities, scrubbers,
     and resource recovery and waste water treatment facilities;

          (10) the production, transportation, distribution or
     storage of all forms of energy other than electricity and
     natural or manufactured gas;

          (11) the development and commercialization of
     technologies or processes that utilize coal waste by-
     products as an integral component of such technology or
     process; and

          (12) the ownership, sale, leasing or licensing of the
     use of telecommunications facilities and equipment (such as
     fiber optic lines, coaxial cable, or other communications
     capacity, towers and tower sites and other similar
     properties).
==========================================START OF PAGE 19======

The rule as proposed also specifically provided a means for the

Commission to add additional activities to the definition upon

application in the future.

     1.   Definition of "energy-related company"

          a.   General

     The Commission received a substantial number of comments

concerning the definition of "energy-related company."  Several

commenters assert that the definition should not consist of

enumerated categories of specific activities, but should instead

be broad and general.-[31]-  Although this approach would

offer greater flexibility, the Commission believes that it is not

consistent with the requirements of section 9(c)(3) of the Act. 

As discussed previously, that section provides an exemption only

for acquisitions of securities that are made in the ordinary

course of business of the registered system and that are not

detrimental to the protected interests.  Rule 58 is intended to

encompass activities with which the Commission is familiar as a

result of its administrative experience and that appear to be so

closely related to the ordinary course of the contemporary

utility business as not to require case-by-case analysis pursuant

to sections 9(a)(1) and 10.  For this reason, the Commission is

retaining enumerated categories in the rule as adopted.  

---------FOOTNOTES----------
     -[31]-  Comments   of   AGA,  Columbia   and   Consolidated.
Suggested  definitions would  include  any company  engaged in  a
business based  on or  developed from the  facilities, resources,
technology  or expertise  of  the registered  system's operations
(Comments  of AGA  and Columbia);  and any  company engaged  in a
business involving the production, transmission, dissemination or
marketing of any form of consumable energy (Comments of AGA).
==========================================START OF PAGE 20======

     Similarly, the Commission notes that the enumerated

categories of specific energy-related activities in rule 58 are

exhaustive, rather than illustrative.  In order for a direct or

indirect acquisition of securities by a registered holding

company or its subsidiary to qualify for the exemption provided

by the rule, the company in which the interest is acquired must

be engaged almost exclusively in the type of activities specified

in the rule.  A registered holding company will continue to apply

to the Commission for prior approval of any acquisitions

concerning activities that fall outside the categories identified

by the rule as energy-related.  Further, as discussed below, to

the extent that a company engages in activities in addition to

those permitted under rule 58, an application will also be

required.

     New Orleans suggests that the definition should include a

requirement that the permitted activity be functionally related

to the system's utility business under sections 10 and

11.-[32]-  Such a requirement is unnecessary for several

reasons.  First, a finding of a functional relationship is not

required in order to qualify for an exemption under section






---------FOOTNOTES----------
     -[32]-  As discussed above,  the Commission  has interpreted
the  provisions of section 11  of the Act,  referenced in section
10(c)(1), to  reflect a Congressional  policy against  nonutility
activities that  bear no operating or  functional relationship to
the utility operations  of the registered system.   See generally
Michigan Consolidated Gas Co., 44 SEC 361 at 363-65.
==========================================START OF PAGE 21======

9(c)(3).-[33]-  Moreover, even though a finding of a

functional relationship under section 11(b)(1) is not required in

this context, each of the activities permitted under the rule as

adopted has in many instances been found, by order upon

application under sections 9(a)(1) and 10, to satisfy the

statutory requirements, including those of section 11(b)(1).  

     One commenter objects to the requirement that an energy-

related company derive "substantially all" of its revenues from

activities designated as "energy-related," and suggests that the

rule should instead require that a company derive merely a stated

portion, e.g., at least 30%, from such activities.-[34]- 

The Commission notes, however, that this measure would permit

registered holding companies to make sizeable investments in

companies engaged primarily in novel, unspecified nonutility

businesses.  The Commission believes its authority to create such

a broad exemption by rule under section 9(c)(3) is subject to





---------FOOTNOTES----------
     -[33]- The Commission has determined that a transaction need
not satisfy the standards of section 11(b)(1) in order to qualify
for exemption under section 9(c)(3), but that section 9(c)(3) may
not be used  to circumvent the  requirements of section  11(b)(1)
generally.   Id. at 366  ("Section 9(c)(3) cannot  be employed to
evade  the  proscription  of  Section  11(b)(1)  prohibiting  the
acquisition by a gas utility company of an interest in a business
unrelated  to its business"); but  see id. at  369 ("the majority
unduly constricts the scope of the Section 9(c)(3) exemption when
it holds that to be entitled to such exemption a transaction must
also  meet  the  standards of  Section  11(b)(1)")  (Commissioner
Owens, concurring  in  part  and  dissenting  in  part)  and  370
(Commissioner Smith, dissenting). 

     -[34]- Comments of CSW.
==========================================START OF PAGE 22======

question.-[35]-  The Commission declines, therefore, to

adopt this suggestion.  Any acquisition of an interest in a

nonutility business that does not derive substantially all of its

revenues from one or more of the activities set forth in the

categories of the rule will continue to require prior Commission

approval by order upon application.

     New Orleans objects to the proposed provision of the rule

creating a procedure for designating additional activities to be

energy-related by order upon application under section

10.-[36]-  New Orleans asserts that new activities and

investments should be approved only pursuant to rulemaking, so

that all parties have an opportunity to evaluate and comment upon

the relationship of the new activity to the core utility business

and the potential effects on ratepayers.  

     In proposing this mechanism for updating the rule, the

Commission intended that all procedural requirements applicable

to agency rulemaking would be observed in connection with the

proposed designation by order of additional activities as energy-

related for purposes of rule 58, including in particular the

requirements related to public notice and opportunity to






---------FOOTNOTES----------
     -[35]- As  noted previously,  the Commission has  found that
section 9(c)(3), under which rule 58 is adopted, may not  be used
to circumvent the requirements of section 11(b)(1) of the Act.  

     -[36]-   This   mechanism   was   provided   in   subsection
(b)(1)(xiii) of the proposed rule.
==========================================START OF PAGE 23======

comment.-[37]-   On reconsideration, however, the

Commission has determined that this provision could result in

increased administrative burdens for both the registered holding

companies seeking approval of new activities and the Commission

staff.  

     If rulemaking is undertaken in the context of consideration

of an application for approval of a specific nonutility

investment, adherence to required procedures, including an

extended comment period for the rulemaking and consideration of

all views submitted, could delay approval of the proposed

transaction that is the subject of the application.  Further,

repetitive paperwork in connection with the rulemaking aspects of

each such application could consume extensive staff resources. 

Accordingly, this feature of proposed rule 58 has not been

retained.-[38]-  The Commission believes, however, that

future expansion of the scope of the rule, to reflect additional

nonutility activities found by the Commission to satisfy the

standards of the Act, is essential to achieve the rule's intended

flexibility.  The Commission intends to evaluate periodically the

coverage of the rule in light of existing Commission orders under

sections 9 and 10 of the Act, and initiate rulemaking proceedings

to reflect any appropriate changes.


---------FOOTNOTES----------
     -[37]-   See   e.g.,   the   relevant   provisions  of   the
Administrative  Procedure Act, 5 USC   553, and the Commission's
rules of practice, 17 CFR 201.192.

     -[38]- A similar provision in the definition of "gas-related
company" has also been eliminated.
==========================================START OF PAGE 24======

     One commenter suggests that the definition of energy-related

company be expanded to include companies that derive

substantially all of their revenues from the listed activities,

either directly or indirectly.-[39]-  The requested

revision would permit a registered holding company system to use

one or more intermediate subsidiaries (i.e., "project parents")

to invest in energy-related companies, yet retain the benefit of

the exemption afforded by the rule.-[40]-  The Commission

believes that this suggestion is consistent with the intent of

the rule as proposed.  Use of an intermediate subsidiary could

further insulate the holding company and its other subsidiaries,

including utility subsidiaries, from any direct losses that could

occur with respect to rule 58 investments.  At the same time,

this measure would offer greater flexibility in the structuring

of these investments.  Accordingly, the rule, as adopted, is

modified to incorporate the concept of indirect investment in

energy-related companies through project parents.-[41]-

     The Commission notes, however, that any such intermediate

subsidiary, like the underlying energy-related companies, must

derive "substantially all" of its revenues from the permitted

activities.  If the company will engage in other activities,

---------FOOTNOTES----------
     -[39]- Comments of GPU.

     -[40]-  The  provisions  of  the  Act  that  permit  use  of
intermediate  holding companies in  connection with investment in
exempt  wholesale  generators  reflect  the same  concept.    See
section 32(a)(1).

     -[41]- This concept is also reflected in the definition of a
gas-related company.
==========================================START OF PAGE 25======

directly or indirectly, prior Commission approval of an

investment interest in such company will be required.  

     b.  Categories of energy-related activities

     The Proposing Release invited specific comment on whether

the proposed rule should include additional kinds or categories

of energy-related activities.  One commenter suggests that

customer financing for other energy-related activities should be

a separate category of permitted activity for an energy-related

company.-[42]-  The Commission notes that customer

financing has been approved in a number of cases involving

activities that are designated as energy-related under rule 58,

and agrees that it may be an appropriate activity for some

energy-related companies.  However, this type of activity is

better addressed in the context of rule 48, as discussed below. 

The Commission therefore declines to include customer financing

as an energy-related activity under rule 58.

     Another commenter suggests that any nonutility business in

which the applicable state commission would allow a regulated

utility or exempt holding company to engage or invest should be a

permitted activity for energy-related companies.-[43]- 

That a state commission permits utilities or holding companies

that are subject to its jurisdiction to engage in a given

nonutility activity can be a strong indication that the activity

is appropriate, and, in a given case, it may be persuasive

---------FOOTNOTES----------
     -[42]- Comments of Northeast.

     -[43]- Comments of CSW.
==========================================START OF PAGE 26======

evidence that some of the standards of the Act have been

satisfied.  However, that a state commission has approved a type

of investment does not necessarily mean that it is in the

ordinary course of business of a registered holding company or

its subsidiary for purposes of section 9(c)(3).  The Commission

does not believe that rule 58 should incorporate such state

determinations as a general matter, without any indication as to

the nature of the approved activities or the relevant state law

standards.  Thus, the Commission will continue to review any such

activity on a case-by-case basis, giving due consideration to the

views of state regulators toward the activity in question.

     As proposed, the rule did not indicate clearly whether an

interest in an energy-related company engaging in an enumerated

activity could be acquired pursuant to the rule by companies in

electric holding company systems, gas holding company systems, or

both.  As adopted, rule 58(b)(1) has been clarified in this

regard to limit the exemption solely to those activities that are

considered to be in the ordinary course of the type of utility

business in which a particular holding company system is

engaged.-[44]-  Any proposal by a registered holding

company system to acquire an interest in a company engaged in

nonutility activities of a type not exempt under the rule for

that type of registered system may be the subject of an

---------FOOTNOTES----------
     -[44]- Holding company systems  engaged in both the electric
and  gas utility business will be considered, for purposes of the
rule,  to be  engaged only  in one  type of utility  business, as
determined by the type of  operations that constitute the holding
company's primary utility business.
==========================================START OF PAGE 27======

application for Commission approval under sections 9(a) and

10.-[45]- 

     Many commenters suggest specific changes or additions to the

categories of permitted activities set forth in the definition. 

A number of comments request clarifications and propose additions

to the list of activities permitted for an energy-related

company.  Some, but not all, comments and revisions to the

categories of permitted activities are discussed below.  

     (1)  Subsection (b)(1)(i):  energy and demand-side
          management services.

     This category of activities was defined in the Proposing

Release to include the rendering of energy conservation and

demand-side management services.-[46]-  The Commission has

previously considered and approved by order under sections

9(a)(1) and 10 a broad range of activities relating to the

business of energy management and demand-side management,

including the following:  energy audits; facility design and

process enhancements; construction, maintenance and installation

of, and training client personnel to operate, energy conservation

equipment; design, implementation, monitoring and evaluation of

energy conservation programs; development and review of

---------FOOTNOTES----------
     -[45]- For  example, an electric registered  holding company
system  would be  required  to  file  an application  and  obtain
authorization to  acquire an  interest in  a  company engaged  in
ownership and  operation of refueling equipment  for natural gas-
powered vehicles.   While acquisition  of an interest  in such  a
company  could be  exempt  under rule  58  for a  gas  registered
holding  company system,  it is  not in the  case of  an electric
registered holding company. 

     -[46]- No comments were received on this subsection.
==========================================START OF PAGE 28======

architectural, structural and engineering drawings for energy

efficiencies; design and specification of energy consuming

equipment; and general advice on programs.-[47]-  Upon

additional consideration, the Commission has concluded that

"energy conservation services" may not be broad enough to cover

the types of activities intended to be exempted under this

category.   The term "energy management services" more accurately

reflects the scope of the exempted activity.-[48]-  The

rule as adopted is revised accordingly.  Apart from this

clarification, the subsection is adopted as proposed.-[49]- 

     Companies in both electric and gas registered systems may

acquire interests in companies engaging in the activities

specified in this subsection.

          (2)  Subsection (b)(1)(ii):  development and
               commercialization of electrotechnologies.

     As used in the rule, electrotechnologies relate to energy

conservation, storage and conversion, energy efficiency, waste





---------FOOTNOTES----------
     -[47]- See, e.g., Eastern Utilities Assocs., Holding Co. Act
Release  No.  26232 (Feb.  15,  1995);  and Northeast  Utilities,
Holding Co. Act Release No. 25114-A (July 27, 1990). 

     -[48]- See,  e.g., New England Electric  System, Holding Co.
Act Release No. 22719 (Nov. 19, 1982).

     -[49]-  This  subsection  is   intended  to  encompass   all
consumer-oriented  activities  that  represent  components  of  a
holding company  system's demand-side management  and integrated-
resource  planning  functions, or  that  are  intended to  reduce
customer  energy  costs  or  lead  to  efficient  use  of  energy
resources by affecting energy consumption.  Customer financing is
not encompassed by this subsection. 
==========================================START OF PAGE 29======

treatment, greenhouse gas reduction and similar

innovations.-[50]-  The Commission has, on many occasions,

approved investments by electric registered system companies in

technologies related to the electric utility

business.-[51]-  Because the Commission has not yet

considered proposals by registered gas system companies to engage

in activities related to such technologies, the Commission is not

prepared at this time to deem these activities to be appropriate

in the ordinary course of the utility business of such systems. 

Accordingly, the Commission is revising the rule to clarify that

only electric registered holding companies and their subsidiaries

are permitted to acquire companies that engage in the activities

in this subsection.  The subsection is otherwise adopted as

proposed.

          (3)  Subsection (b)(1)(iii):  electric and gas
               vehicles.

     As proposed, this subsection included manufacture,

conversion, sale and servicing of electric and compressed natural

gas powered vehicles, and ownership and operation of related




---------FOOTNOTES----------
     -[50]-  No  comments  were  received  on  this  category  of
activities.  

     -[51]- See,  e.g., American Electric Power  Co., Holding Co.
Act Release No. 25424 (Dec. 11, 1991) (acquisition of an interest
in a  company that  develops, manufactures and  markets efficient
light  bulbs); and Allegheny Power System,  Inc., Holding Co. Act
Release No.  26085 (July  14, 1994) (investments  in technologies
related to power conservation  and storage, conservation and load
management, environmental and  waste treatment, and power-related
electronic systems and components).
==========================================START OF PAGE 30======

refueling and recharging equipment.-[52]-  The Commission

has determined that the subsection should be expanded to include

ownership, operation, sale, installation and servicing of

refueling, recharging and conversion equipment and facilities

relating to electric- and gas-powered vehicles,-[53]- but

should not extend to manufacture of such equipment and facilities

or to manufacture, conversion and sale of the vehicles

themselves.-[54]-   The Commission has revised the

subsection as adopted to make clear its intended scope. 

     In addition, the Commission believes, based on existing

precedent, that it is appropriate to limit the described

activities to those appropriate for gas registered system

companies and electric registered system companies, respectively. 

The rule as adopted is revised to reflect this limitation.

          (4)  Subsection (b)(1)(iv):  appliance sales.

     As proposed, this subsection included the sale, installation

and servicing of electric and gas appliances for residential,

commercial and industrial heating and lighting.  Comments



---------FOOTNOTES----------
     -[52]- No comments were received on this subsection.  

     -[53]- The Commission has issued orders authorizing  broader
involvement with  respect to such activities  than that reflected
in the rule as proposed.  See, e.g., Columbia Gas System, Holding
Co. Act Release No.  26295 (May 23, 1995) (authorizing  the sale,
ownership, operation, installation and  servicing of natural  gas
refueling equipment and sale of equipment  and facilities for use
in vehicle conversion); and Consolidated Natural Gas Co., Holding
Co. Act Release No. 25615 (Aug. 27, 1992) (same).

     -[54]- The  Commission has not  yet approved these  types of
activities by order under sections 9(a) and 10.
==========================================START OF PAGE 31======

included suggestions that this category extend to

leasing-[55]- and customer financing

arrangements;-[56]- and that the equipment at issue include

other energy-consuming devices-[57]- and equipment used for

energy generation, both within and outside the system's service

territory.-[58]-  

     The Commission finds that it is appropriate to expand the

types of equipment addressed by the rule to include other types

of energy-consuming devices.-[59]-  Historically, the

Commission approved the activities addressed in this subsection

to encourage consumption of electricity and gas, to promote

competition among fuels and, more recently, to further energy

conservation.-[60]-   The rule as adopted has been revised,

---------FOOTNOTES----------
     -[55]- Comments of Consolidated  and Northeast.  Because the
term  "sale,"  as  defined  in  section   2(a)(23)  of  the  Act,
encompasses dispositions by  lease, the Commission  believes that
no change to the subsection is needed.  

     -[56]-  Comments of  Northeast.   Northeast also  raised the
question of  customer financing in a  broader context, suggesting
the addition to the  rule of a category concerning  the financing
of  other   energy-related  activities.     The   Commission  has
determined to address  this issue in  the context of rule  48, as
discussed below.

     -[57]- Comments of CSW.

     -[58]- Comments of Northeast.  

     -[59]- Prior orders in this area under sections 9(a)(1)  and
10 permit  the sale, installation, servicing  and/or financing of
significantly broader categories of equipment than appliances for
heating and lighting.   See, e.g., Consolidated Natural  Gas Co.,
Holding Co. Act Release No. 26234 (Feb. 23, 1995).

     -[60]-  See e.g., Cities Service  Co., 15 S.E.C. 962 (1944);
General Public Utilities Corp., Holding Co. Act Release No. 15184
                                                   (continued...)
==========================================START OF PAGE 32======

consistent with these precedents, to include electric and gas

appliances, equipment that promotes technologies that use gas or

electricity and equipment that enables use of gas or electricity

as an alternate fuel.  Companies in both electric and gas holding

company systems may acquire interests in companies engaging in

the activities specified in this subsection.

     The Commission declines to adopt the suggestion that the

rule exempt sale, installation and servicing of generation

equipment.  These activities may involve issues of broader

concern, which lie outside the ambit of this rulemaking. 

          (5)  Subsection (b)(1)(v):  brokering and marketing of
               energy commodities.

     This subsection covers the brokering and marketing of energy

commodities, including but not limited to electricity and natural

or manufactured gas.  One commenter proposes that this subsection

should be expanded to cover energy-related commodities and should

specify that it covers other combustible fuels in addition to

electricity and gas.-[61]-  The Commission does not believe

there is a basis to include "energy-related commodities" in this

context.  However, the subsection is revised in the adopted rule

to include other combustible fuels.-[62]-

     As proposed, this subsection did not indicate the markets in

---------FOOTNOTES----------
     -[60]-(...continued)
(Feb. 9, 1965); and Louisiana Power  & Light Co., Holding Co. Act
Release No. 25445 (Dec. 26, 1991).

     -[61]- Comments of Consolidated.

     -[62]- Other combustible  fuels would include,  for example,
coal, oil, wood chips, oil shale, isobutane and propane.
==========================================START OF PAGE 33======

which the permitted activities could be carried out.  The

Commission's existing orders in this area extend primarily to

wholesale markets.-[63]-  However, the Commission has

authorized retail electric marketing activities in states with

established retail wheeling programs,-[64]- and, more

recently, authorized retail marketing activities with respect to

both electric power and natural gas, throughout the United

States, subject to compliance with applicable state statutes,

regulations and orders with respect to such sales.-[65]- 

In view of these precedents, and in light of the rapid

development of competition in retail markets, as discussed above,

this subsection is intended to cover activities in both wholesale

and retail markets that are in compliance with applicable law.  

     This subsection, as proposed, also did not indicate whether

a registered holding company could acquire an interest in a

company dealing in all energy commodities or only in electric

---------FOOTNOTES----------
     -[63]- See, e.g., Consolidated  Natural Gas Co., Holding Co.
Act  Release  No.  26512  (Apr. 30,  1996)  (approving  wholesale
marketing of energy commodities,  but reserving jurisdiction over
retail  marketing activities  until such  time as  state programs
permitting such activities are implemented).  

     -[64]-   See, e.g.,  Eastern Utilities Assocs.,  Holding Co.
Act Release  No. 26519  (May 23,  1996) (participation in  retail
electric pilot programs in  New Hampshire and Massachusetts); and
New  England Electric System,  Holding Co. Act  Release No. 26520
(May 23, 1996) (same).

     -[65]- SEI Holdings, Inc., Holding Co. Act Release No. 26581
(Sept.  26, 1996).  The Commission noted that industry trends and
competitive  pressures make  it important  for registered  system
companies  to be  poised to  compete in new  markets as  they are
created, and that such participation appears to promote the goals
of U.S. energy policy,  including increased competition and lower
utility rates.
==========================================START OF PAGE 34======

power or natural gas, as appropriate.  At the time the Proposing

Release was issued, the Commission's previous orders had, for the

most part, limited participation in gas marketing and brokering

activities to gas holding company systems, and electric marketing

and brokering activities to electric holding company systems. 

Since that time, however, the Commission has considered and

approved several proposals by registered holding companies to

engage in the brokering and marketing of energy commodities,

including but not limited to electricity and natural or

manufactured gas.-[66]-  The rule as adopted permits

companies in both electric and gas systems to acquire interests

in companies engaging in the activities described in this

subsection.

     One commenter recommends that the Commission revise the

subsection to clarify that it concerns both regulated and

unregulated activities.-[67]-  Since rule 58 addresses only

the acquisition of securities of nonutility companies engaged in

specified activities, this comment is not reflected in the rule.

     Several commenters suggest that the specified activities




---------FOOTNOTES----------
     -[66]- Consolidated Natural Gas Co., Holding Co. Act Release
No.  26512 (Apr. 30, 1996); UNITIL Corp., Holding Co. Act Release
No. 26527 (May 31, 1996); and SEI Holdings, Inc., Holding Co. Act
Release  No. 26581  (Sept. 26,  1996).   Other companies  in both
electric and gas holding company systems are also seeking similar
authorizations.   See, e.g., National Fuel  Resources, Inc., File
No. 70-8651.

     -[67]- Comments  of CSW.  Unregulated  activities are stated
to be those that are for the benefit of shareholders.
==========================================START OF PAGE 35======

should include "risk management activities"-[68]- and

"market hedging tools."-[69]-  The Commission has, in

several instances, considered such activities in connection with

the brokering and marketing of energy commodities.-[70]- 

In each case, the order was conditioned on representations that

hedging tools would be used only to minimize risks associated

with contracts for purchase or sale of energy commodities and

would not be used to engage in speculation.  Such activities are

a means of limiting the risks associated with marketing of energy

commodities and, subject to compliance with the limitations noted

above, may be engaged in as part of the activities covered by

this subsection.  

          (6)  Subsection (b)(1)(vi):  thermal energy products.

     This subsection addresses the production, conversion and

distribution of thermal energy products,-[71]- alternative

fuels and renewable energy resources.  The Commission received

one comment, suggesting that sale of such products and servicing

of thermal energy facilities should be added to the permitted




---------FOOTNOTES----------
     -[68]- Comments of CSW.

     -[69]- Comments of Cinergy.

     -[70]-  See,  e.g.,  SEI  Holdings, Inc.,  Holding  Co.  Act
Release No. 26581 (Sept. 26, 1996); Consolidated Natural Gas Co.,
Holding  Co.  Act  Release   No.  25926  (Nov.  16,   1993);  and
Consolidated Natural Gas Co., Holding Co. Act Release No. 26512.

     -[71]-  Examples given  in the  rule include  process steam,
heat, hot water, chilled  water, air conditioning, compressed air
and similar products.
==========================================START OF PAGE 36======

activities.-[72]-  The rule as adopted has been revised to

include these suggestions.  The rule has also been revised to

limit availability of this subsection to electric registered

holding company systems.

          (7)  Subsection (b)(1)(vii):  sale of services and
               expertise.

     This section addresses the sale of technical, operational,

management and other kinds of services and expertise developed in

the course of utility operations.-[73]-  Commenters offer

various requests for expansion of this category.

     One registered holding company suggests that the category

should also include development, production, marketing and

financing of such services and expertise.-[74]-  The

Commission notes, however, that the subsection is intended to

address services and expertise that exist as a result of system

utility operations.  The development and production of such

services and expertise, solely for the purpose of sale, are

outside its scope.  In addition, the marketing of such services

and expertise is implicit in the concept of sale, and thus need

not be specifically mentioned.  As discussed below, the

---------FOOTNOTES----------
     -[72]- Comments of GPU.

     -[73]-  Examples cited  in the  proposed rule  include power
plant  and transmission  system engineering,  development, design
and rehabilitation; construction; maintenance and operation; fuel
procurement,  delivery  and management;  environmental licensing,
testing and remediation; and other similar areas.  The activities
contemplated by the rule do not extend to any that would render a
company  a public-utility  company under  the  Act.   See section
2(a)(3), (4) and (5).

     -[74]- Comments of Consolidated.  
==========================================START OF PAGE 37======

Commission believes that customer financing is better addressed

in the context of rule 48.  The Commission declines to adopt

these proposed revisions to the rule.

     Two commenters suggest that expertise and services developed

in the course of nonutility operations should also be

included.-[75]-  While expertise related to some nonutility

services may be appropriate for inclusion in the activities

covered by the rule, the Commission believes that there is not

yet an adequate basis for including them, and will continue to

consider proposals on a case-by-case basis.

     A registered holding company suggests an expansion of this

category to include the sale of excess goods and

assets.-[76]-  The Commission declines to adopt this

suggestion with respect to sale of utility assets and resources

by a nonutility company, primarily because those activities could

involve significant consumer protection issues, and could also

raise restructuring issues that are beyond the scope of the rule. 

Some sales of excess nonutility assets and resources may be a

legitimate activity for rule 58 companies, but the Commission

does not believe that there is, as yet, an adequate basis for

inclusion of such activities in the rule.  Consideration of these

types of activities will continue to be done on a case-by-case

basis.

     Another registered holding company proposes that this

---------FOOTNOTES----------
     -[75]- Comments of AGA and Columbia.

     -[76]- Comments of CSW. 
==========================================START OF PAGE 38======

category of the rule be expanded to include the sale of

administrative services and equipment related to services and

expertise.-[77]-  The Commission notes, however, that

administrative services, to the extent they are within the scope

of management services, need not be expressly addressed.  In

addition, as discussed above, sales by a nonutility subsidiary

company of equipment used in utility operations, even equipment

related to the service being sold, could raise consumer

protection issues.  Accordingly, the Commission declines to

accept these suggestions.

     Commenters also suggest that the list of examples of the

types of services and expertise covered by this subsection be

expanded.-[78]-  As discussed previously, the rule is

intended to encompass the types of activities that may be

considered to be in the ordinary course of business of a

registered holding company.  In this regard, the Commission has

taken into account its experience in administering sections

9(a)(1) and 10 of the Act.  To the extent that the commenters

request the inclusion of activities with which the Commission has

little or no familiarity, it is appropriate to continue case-by-

case review.  Accordingly, the Commission declines to modify the

---------FOOTNOTES----------
     -[77]- Comments of Northeast.  

     -[78]-   Comments   of   Consolidated    (gas   exploration,
development,  transmission or storage  system design); CSW (waste
management  activities); GPU  (consulting and  training); Cinergy
(revenue   security   and   employee   safety);   and   Northeast
(distribution   system   engineering,   development  design   and
rehabilitation,  environmental  services, and  transportation and
fleet services).  
==========================================START OF PAGE 39======

adopted rule as these commenters request.

     It should also be noted in this regard that only those type

of services and expertise that are uniquely utility-related are

intended to fall within this category of activity.  Activities

that are more generic are not intended to be a permitted activity

for energy-related companies.-[79]-

     The Commission notes in connection with this subsection that

any use by a system nonutility company of personnel or other

resources of an associate public-utility company raises issues

under section 13 of the Act and rules thereunder-[80]-

relating to pricing of intrasystem transactions.  Persons

engaging in these activities and relying upon the exemption

provided by the rule are advised to consider these requirements.

     Companies in both electric and gas registered systems may

acquire interests in companies engaging in the activities


---------FOOTNOTES----------
     -[79]-  For  instance,  expertise  in  billing and  customer
service  may be developed  in the  course of  utility operations.
These  types of  activities are  not, however,  uniquely utility-
related and, thus, are not encompassed by this subsection.

     -[80]-  Section  13 prohibits  registered  holding companies
from  entering  into  or  performing any  contract  for  service,
construction or the sale  of goods with any associate  utility or
service  company, except as may  be permitted by  rule in special
circumstances  or in the ordinary course of business.  Section 13
also provides that subsidiaries  of registered holding companies,
in entering into  or performing any  such contracts, must  comply
with any  limitations imposed by  the Commission as  necessary or
appropriate  to   insure  that   such  contracts  are   performed
economically and  efficiently for  the benefit of  such associate
companies  at cost,  fairly  and equitably  allocated among  such
companies.    Rules 85  through  92,  adopted  under section  13,
specify the  situations in which such  transactions are permitted
and generally provide that,  with some exceptions, such contracts
must be performed at cost.
==========================================START OF PAGE 40======

specified in this subsection.  As adopted, this subsection has

been revised only to the extent necessary to eliminate redundant

language.  


          (8)  Subsection (b)(1)(viii):  ownership and operation
               of QFs.

     This subsection, as proposed, included ownership or

operation of QFs and of facilities necessary or incidental

thereto.-[81]-  The Commission received one comment on this

provision, proposing that development of QFs also be included in

the rule.-[82]-  The Commission has approved project

development activities in connection with QFs in a number of

cases.-[83]-  Such activities are implicit in the

subsection as proposed, and the subsection has been revised to

include them specifically.

     After careful review of the precedent in this area under

sections 9(a)(1) and 10, the Commission has also determined that

it is appropriate to make clear that this subsection is intended

to include ownership and operation of only the types of

incidental facilities that are required in order to meet the




---------FOOTNOTES----------
     -[81]- Such facilities are  stated to include thermal energy
utilization  facilities purchased  or  constructed  primarily  to
enable the QF to  satisfy the useful thermal output  requirements
under PURPA and regulations thereunder.

     -[82]- Comments of GPU.

     -[83]- See, e.g.,  Southern Co., Holding Co. Act Release No.
26212 (Dec. 30, 1994); and  Allegheny Power System, Inc., Holding
Co. Act Release No. 26229 (Feb. 3, 1995).
==========================================START OF PAGE 41======

requirements of PURPA.-[84]-  Subsection (viii), as

adopted, has been revised accordingly.

     Companies in both electric and gas registered systems may

acquire interests in companies engaging in the activities

specified in this subsection.

          (9)  Subsection (b)(1)(ix):  fuel facilities,
               scrubbers, and resource recovery and waste water
               treatment facilities.

     As proposed, this subsection included ownership and

operation of fuel procurement, transportation, handling and

storage facilities, scrubbers, and resource recovery and waste

water treatment facilities.-[85]-  One registered holding

company suggests that servicing of such facilities should also be

permitted.-[86]-  The subsection has been revised expressly

to permit such activity.  

     Another registered holding company suggests that this

subsection should be expanded to permit use of excess system


---------FOOTNOTES----------
     -[84]-  The Commission  has  authorized  registered  holding
companies  to  invest  in an  18  acre  thermal  host greenhouse,
Central and South West  Corp., Holding Co. Act Release  No. 25399
(Nov.  1,  1991), and  an integrated  carbon dioxide  plant steam
host,  Central and South West Corp., Holding Co. Act Release Nos.
25477  (Feb. 18,  1992)  and  25983 (Jan.  31,  1994).   In  each
instance, the  Commission found that the  incidental facility was
necessary  to the operation of  the QF.   The Commission believes
that it is  appropriate for the subsection of  the rule to extend
to  investments in any type of incidental facility that is needed
for a facility to attain QF status.

     -[85]-   This  subsection  is   not  intended  to  encompass
ownership  or operation  of  any facilities  that would  cause an
energy-related  company to  become  an electric  utility  company
under the Act.  See section 2(a)(3).

     -[86]- Comments of GPU.
==========================================START OF PAGE 42======

assets, such as office equipment and space and excess space in

billing envelopes.-[87]-  The Commission believes that this

request is more appropriately directed to subsection (b)(1)(vii)

and has addressed it in that context.

     The Commission orders on which inclusion of these activities

is based relate to generation of electricity.  As a result, the

rule's exemption for the acquisition of a company that engages in

activities described in this subsection is available only for

companies in electric registered systems.-[88]-

          (10) Subsection (b)(1)(x):  production, transportation,
               distribution or storage of other forms of energy.

     The activities in this subsection concern all forms of

energy other than electricity and natural or manufactured gas. 

Commenting registered holding companies suggest that the

permitted activities should also include the sale of these forms

of energy, -[89]- as well as all activities in the supply

chain concerning them, including development, exploration,

research and testing.-[90]-   The commenters further

propose that the subsection specifically include sources of

energy.-[91]-  


---------FOOTNOTES----------
     -[87]- Comments of Northeast.

     -[88]-    Many    activities    related   to    procurement,
transportation and  storage of natural gas for sale are permitted
for gas-related companies, as discussed below.

     -[89]- Comments of GPU.

     -[90]- Comments of AGA, CSW and Columbia.

     -[91]- Comments of CSW.
==========================================START OF PAGE 43======

     The Commission has concluded that the activities in this

proposed subsection duplicate in many respects the activities

included in other subsections of the rule as adopted.-[92]- 

Accordingly, this subsection has been eliminated in the final

rule.

          (11) Subsection (b)(1)(xi):  coal waste by-products.

     This subsection includes development and commercialization

of technologies or processes that utilize coal waste by-products

as an integral component.  Two registered holding companies

comment on this subsection and request that it be expanded to

include all waste products and by-products of generation of

electricity and natural gas production, as well as investments in

facilities and equipment used in processes to improve wastes and

by-products or convert them into useful goods.-[93]-  The

Commission notes that, to date, it has considered only cases

involving coal waste products and by-products of electric

generation,-[94]- and this subsection is adopted as

---------FOOTNOTES----------
     -[92]-  For instance,  subsection  (v)  covers marketing  of
energy commodities; subsection (vi) covers production and sale of
thermal energy products,  alternative fuels and renewable  energy
resources; subsection (ix) covers  ownership or operation of fuel
procurement, transportation, handling and storage facilities; and
subsection (x) covers utilization of certain waste by-products of
the generation of electricity.   In addition, as discussed below,
production  of other fuels may  be a permitted  activity for gas-
related companies under some circumstances.

     -[93]- Comments of Allegheny and Southern.

     -[94]- See Jersey Central Power & Light Co., Holding Co. Act
Release  No.  24373  (April  16,  1987)  (investment  in  company
developing a waste coal-fired generating unit); American Electric
Power Co., Holding  Co. Act  Release No. 26014  (March 30,  1994)
                                                   (continued...)
==========================================START OF PAGE 44======

proposed.  

     Only companies in electric holding company systems may

acquire an interest in a company engaged in the activities in

this subsection.  

          (12) Subsection (b)(1)(xii):  telecommunications
               facilities.

     This subsection addresses the ownership, sale, leasing or

licensing of the use of telecommunications facilities and

equipment.  The Commission received numerous comments on the

advisability and scope of this part of the rule.-[95]-  In

view of the passage in 1996 of the Telecommunications Act,

legislation that exempts from the requirement of prior Commission

approval the acquisition and retention by a registered holding

company of interests in companies engaged in a broad range of

telecommunications activities and businesses, these activities

are not included in the adopted rule.

     2.   Limitation on Investment

     As noted above, the exemption of rule 58 is available so

long as aggregate investment by a registered holding company and

---------FOOTNOTES----------
     -[94]-(...continued)
(acquisition  of securities of  subsidiary that develops backfill
material using fly ash, a coal waste by-product); and New England
Electric System,  Holding Co.  Act Release  No. 26277  (April 26,
1995)  (investment  in  a  venture  that  installs  equipment  to
separate unburned carbon from coal ash).

     -[95]- Registered holding companies generally commented that
this  section  should be  expanded to  cover  a broader  range of
telecommunication  services  and  products.    Comments  of  CSW,
Entergy and  GPU.   New  Orleans,  however, commented  that  this
subsection should be eliminated as not in the public interest due
to possible cross-subsidization problems and lack of relationship
to the core utility business.
==========================================START OF PAGE 45======

its subsidiaries in energy-related companies does not exceed the

greater of 15% of consolidated capitalization or $50 million.  As

proposed, investments in such companies made pursuant to

Commission order prior to the effective date of the rule would be

excluded for purposes of calculating the limitation.  In the

Proposing Release, the Commission requested specific comment on

(1) whether the proposed investment limitation is reasonable

under the circumstances; (2) whether a different measure of

financial capacity, such as consolidated retained earnings,

should be used instead; and (3) whether it is appropriate to

exclude prior investments for purposes of the rule.

          a.   Need for a Limitation

     Some commenters consider an investment limitation to be

unnecessary.  They note that the types of energy-related

businesses specified in the rule are closely related to the

utility industry-[96]- and that competitive markets and the

financial condition of any particular registered holding company

establish prudent limits on diversification.-[97]-  They

state, further, that the Commission can monitor the effects of

diversification through its review of holding company

financing,-[98]- and they note that consumers are protected

against potential cross-subsidization by various factors,



---------FOOTNOTES----------
     -[96]- Comments of Entergy.

     -[97]- Comments of AGA and Columbia.

     -[98]- Comments of Columbia and Entergy.
==========================================START OF PAGE 46======

including the at-cost rules under section 13 of the

Act,-[99]- rate regulation and the companies' need to be

competitive.-[100]-  Several commenters, however, state

that if the Commission determines that a limitation is

appropriate, the proposed limitation is reasonable.-[101]- 

These commenters consider a more restrictive standard to be

unnecessary.-[102]-

     The Commission continues to believe that it is appropriate

to limit the aggregate investment of a registered holding company

in energy-related companies pursuant to the rule.  Section

9(c)(3) by its terms contemplates that the Commission will

condition rules thereunder upon such limitations as it may

prescribe as appropriate in the ordinary business of a registered

holding company or its subsidiary company and not detrimental to

the public interest or the interest of investors or consumers. 

An aggregate limitation upon investments pursuant to the rule is

appropriate to ensure that acquisitions of interests in energy-

related companies are not so material as to depart from the

statutory concept of transactions in the ordinary course of

business or to raise the possibility of detriment to the




---------FOOTNOTES----------
     -[99]- Rules 90,  91 and  92 under the  Act, 17 CFR  250.90,
250.91 and 250.92.

     -[100]- Comments of AGA.

     -[101]- Comments of Consolidated, GPU and Southern.

     -[102]- Comments of AGA and GPU.
==========================================START OF PAGE 47======

protected interests.-[103]-  The Commission may revisit

the need for an investment limitation in rule 58 in the future,

after gaining experience with the use and effects of the

exemption provided by the rule.

          b.   Basis for Calculation of the Limitation

     New Orleans asserts that either consolidated retained

earnings or consolidated equity is preferable to consolidated

capitalization as a means to measure shareholder funds that are

not needed to meet the registered system's utility service

obligations.  

     The commenting registered holding companies oppose a

standard based on consolidated retained earnings.  They note that

such earnings can vary significantly as a result of factors that

do not affect financial health, such as accounting changes and

other nonrecurring items.-[104]-  They also assert that

consolidated retained earnings are primarily an indicator of

ability to raise new capital economically, and, to this extent,

lack relevance for the purpose of setting a limitation upon

---------FOOTNOTES----------
     -[103]- The Commission notes  that its jurisdiction over the
issuance  and sale of securities by  a registered holding company
and  its  subsidiaries  to  finance  investments   in  nonutility
companies  pursuant to rule 58  will also serve  to minimize risk
and to enable the Commission to monitor the effects of nonutility
activities  on  the  registered   system.    The  Commission  has
jurisdiction  over such  financing transactions under  sections 6
and  7 of the Act, and must  consider certain effects of proposed
financings in determining  whether the standards of  the Act have
been satisfied.  See the Proposing Release, 60 FR at 33646.

     -[104]- One registered holding company also observes in this
regard that  a standard  based on consolidated  retained earnings
would create uncertainty in a registered holding company system's
planning.  Comments of CSW.
==========================================START OF PAGE 48======

investment under the rule.-[105]-

     The registered holding companies generally support a

standard based on consolidated capitalization, because, in their

view, it offers flexibility-[106]- and a meaningful

measure of system financial integrity.-[107]-  These

commenters explain that a flexible standard is appropriate

because the activities encompassed by the exemption of the rule

are closely related to the utility business and have been

reviewed and approved by order of the Commission.-[108]-  

     The Commission recently considered a question of the

appropriate basis for an investment limitation in the context of

EWGs.  Rule 53, adopted under section 32 of the Act, provides a

safe harbor for approval of proposals to issue securities related

to investments in EWGs.-[109]-  To qualify for the rule's

---------FOOTNOTES----------
     -[105]- Comments of Southern.

     -[106]- Comments of GPU and Northeast.

     -[107]- Comments of Allegheny and Southern.

     -[108]- Comments of CSW.

     -[109]- Section 32 of the Act  provides that, in determining
whether  to approve a proposed issuance  of securities related to
EWG  investments, the  Commission may  not make  certain negative
findings under the Act unless the proposed transaction would have
a substantial  adverse impact on  the financial integrity  of the
registered  holding company  system.   Section 32(h)(3)  and (4).
Section 32 also directs the Commission to adopt regulations  that
would set forth "the  actions which would be considered to have a
substantial  adverse impact  on  the financial  integrity of  the
registered   holding  company  system   [and]  ensure   that  the
[financing  in question]  has  no adverse  impact on  any utility
subsidiary   or  its  customers,  or  on  the  ability  of  State
commissions  to protect  such subsidiary  or customers  . .  . ."
Section  32(h)(6).     Rule 53  was  adopted to  effectuate these
                                                   (continued...)
==========================================START OF PAGE 49======

safe harbor, the aggregate investment of the registered holding

company system in EWGs and foreign utility companies ("FUCOs")

cannot exceed 50% of the system's consolidated retained earnings. 

In adopting rule 53, the Commission determined that retained

earnings was an appropriate standard against which to measure the

safe harbor limitation on these exempt investments.  

     Although the Commission has found a standard based on

consolidated retained earnings to be appropriate in the context

of rule 53, it does not follow that it is appropriate in the case

of investments in energy-related companies.  The Commission noted

in adopting the safe harbor provisions of rule 53 that

investments in EWGs and FUCOs were new activities, and that the

potential risks, which could not accurately be predicted, could

conceivably be significant.  The Commission rejected a test based

on consolidated capitalization, because it would not directly

reflect the effect of losses in connection with an EWG or FUCO

investment.  The Commission concluded that the level of retained

earnings, which is directly sensitive to losses, was a more

appropriate standard against which to measure these

investments.-[110]-  In contrast, as discussed previously,

---------FOOTNOTES----------
     -[109]-(...continued)
provisions.    If  the  rule's  safe  harbor are  satisfied,  the
Commission   is  precluded  from  making  the  negative  findings
specified in section 32(h)(3) and (4).  

     -[110]-  The  Commission  stated  that  "[b]ecause EWGs  and
foreign  utility companies  are  still novel  entities, there  is
little experience  on which to base  predictions concerning their
performance  . . . .  [R]etained earnings would  best capture the
effect upon a system's financial condition of reverses in EWG and
                                                   (continued...)
==========================================START OF PAGE 50======

investments under rule 58 are deemed to be appropriate within the

ordinary course of business of registered systems and consistent

with the protected interests under the Act.   The risks are more

predictable and presumably more limited.     In rejecting

alternative bases for the investment limitation in rule 53, the

Commission also noted that consolidated capitalization "relates

principally to the capital structure created to fund the holding

company system's domestic utilities. . .,"-[111]- and thus

is not a particularly appropriate standard against which to

measure investments in EWGs and FUCOs.  This is not the case for

acquisitions of interests in energy-related companies, whose

activities, as previously discussed, are closely related to the

core utility business of a registered system.  Because total

system capitalization is intended to support the system's utility

business, the Commission regards it as an appropriate measure of

the amount of capital that may be invested in utility-related

businesses.  In addition, because consolidated capitalization is

a more stable base of calculation than retained earnings, the

amount of the investment cap would be less subject to

fluctuations.

     The test in rule 53 was formulated to effectuate the





---------FOOTNOTES----------
     -[110]-(...continued)
foreign utility  company investments."   Holding Co.  Act Release
No. 25886 (Sept. 23, 1993), 58 FR 51488, 51493 (Oct. 1, 1993).

     -[111]- Id.
==========================================START OF PAGE 51======

specific protections required by section 32.-[112]-  In

contrast, section 9(c)(3), under which rule 58 is adopted, deals

with a different type of investment than that covered by section

32, i.e., one appropriate in the "ordinary course of business." 

Investors and consumers are protected not only through the

investment cap for energy-related investments, but also through

this limitation.  

     In view of these considerations, the Commission believes

that a consolidated capitalization standard is appropriate for

purposes of a limitation on exempt investments under rule 58. 

The final rule incorporates this standard.

          c.   Treatment of Previous Investments 

     The Commission received a significant number of comments

concerning the proposed exclusion of prior investments in energy-

related companies, made pursuant to Commission order, from the

calculation of aggregate investment for purposes of the

limitation of the rule.  New Orleans and one registered holding

company-[113]- assert that such prior investments should




---------FOOTNOTES----------
     -[112]-  In  discussing   the  investment  limitation,   the
Commission stated  that rule  53 is  "intended to  protect system
financial   integrity  and   so  protect   utilities  and   their
ratepayers."  A "key factor" in this regard is the ability of the
holding company, which  is a  source of capital  for its  utility
subsidiaries, to obtain financing at a reasonable cost.  Retained
earnings  was chosen as the  basis of the  safe harbor investment
limitation, among  other things, because  they are linked  to the
cost of capital, and thus provide a "fundamental protection."  58
FR at 51492.

     -[113]- Comments of Allegheny.
==========================================START OF PAGE 52======

be included in the calculation.-[114]-  The majority of

commenters, however, consider the "grandfathering" of these

investments to be appropriate.  These commenters note that the

investments have been found to satisfy the requirements of the

Act.-[115]-  Further, the commenters assert that inclusion

of prior investments would penalize those registered holding

companies that have successful energy-related programs in

place,-[116]- and also prevent registered holding

companies from competing on an equal footing with exempt holding

companies and companies not subject to the Act.-[117]- 

Finally, the commenters contend that it would be burdensome to

require a determination of whether or not various prior




---------FOOTNOTES----------
     -[114]-  New Orleans  believes  that the  total of  existing
investments  and future  investments  under rule  58 would  be so
great as  to be detrimental  to ratepayers.   As of  December 31,
1995,  registered  holding companies  had  invested approximately
$1.25 billion in companies that would be energy-related companies
within the  meaning  of  rule  58(a).   As  of  that  date,  such
investments  represented  approximately   1.6%  of   consolidated
capitalization of the registered systems having such investments.
On  an  individual basis,  no  registered  system had  more  than
approximately 5.6% of its consolidated capitalization invested in
energy-related companies as of December 31, 1995.  The Commission
believes that  this  level  of  investment  does  not  raise  any
significant issues  of risks  to the  interests protected by  the
Act.  The  Commission also notes that  because registered holding
companies   often  make  these   investments  through  nonutility
subsidiaries, system operating companies and their ratepayers are
insulated from exposure to any direct losses that may result from
the investments.

     -[115]- Comments of CSW, EUA, GPU and Northeast.

     -[116]- Comments of EUA.

     -[117]- Comments of AGA.
==========================================START OF PAGE 53======

investments are energy-related for purposes of rule

58.-[118]-

     Several commenters propose that the limitation should

exclude not only investments made pursuant to Commission order

prior to the rule, but also previously-authorized investments

that have not yet been made as of the date of the

rule.-[119]-  One commenter suggests, in addition, that

investments that the Commission may authorize by future order

should be excluded for purposes of the limitation of rule

58.-[120]-  This commenter also requests the Commission to

clarify whether previous investments in energy-related companies

pursuant to other exemptions should be excluded from calculation

of the investment limit.  At issue are investments by registered

holding companies in their nonutility subsidiaries pursuant to

rules 52 and 45, as recently amended.-[121]-

     The Commission believes that all amounts that have actually

been invested in energy-related companies pursuant to Commission

order prior to the date of effectiveness of the rule should be

---------FOOTNOTES----------
     -[118]- Comments of EUA and GPU.

     -[119]- Comments  of  AEP, Consolidated,  EUA,  Entergy  and
Southern.

     -[120]- Comments of Entergy.

     -[121]- See  Holding Co.  Act Release  No.  26311 (June  20,
1995),  60  FR   33634  (June  28,  1995)   (exempting  from  the
requirement  of prior  Commission approval  capital contributions
and  non-interest   bearing  open  account  advances   by  parent
companies  to  nonutility  subsidiaries,  and  the  issuance   by
nonutility  subsidiaries  and  acquisition by  their  parents  of
specified  types of securities, the proceeds of which are for use
in the subsidiary's existing business).
==========================================START OF PAGE 54======

excluded from the calculation of aggregate investment under rule

58.  The Commission also believes it is appropriate to exclude

from the calculation all investments made prior to that date

pursuant to available exemptions.-[122]-   

     The Commission believes, however, that any investment made

after the date of effectiveness of rule 58 should be included for

purposes of calculation of the limitation, regardless of whether

these investments are made pursuant to prior Commission order or

available exemptions.-[123]-   As for the question of

whether investments approved by order after the date of

effectiveness of rule 58 should be excluded from the calculation,

the Commission believes that the issue is best addressed on a

case-by-case basis.  This approach will enable the Commission to

consider the effect of the particular transaction on the

---------FOOTNOTES----------
     -[122]- Under  this interpretation,  amounts  invested by  a
registered system company in an energy-related company during the
period between  adoption and  effectiveness will be  excluded for
purposes of calculating aggregate investment; provided, that such
investments are  used  solely to  fund  activities in  which  the
company  has previously been authorized to engage by order of the
Commission and  that such amounts are not disproportionate to the
current  operations of  such  business.   Since these  additional
investments  will  fund   activities  that  the  Commission   has
previously considered and approved  under sections 9(a)(1) and 10
of  the Act, the Commission does not believe that their exclusion
raises any significant concerns with respect to protection of the
interests  covered  by the  Act.    Any investments  in  existing
energy-related companies made prior to the effective  date of the
rule must be reported on Form U-9C-3.

     -[123]-  As discussed  below,  the  Commission  is  adopting
amendments to rules 52 and 45 that subject investments in energy-
related companies  to the same  limitations under these  rules as
are  applicable under rule 58.  These limits apply to all energy-
related companies,  regardless of whether the  initial investment
in such  company was made pursuant  to order or pursuant  to rule
58. 
==========================================START OF PAGE 55======

registered system. 

          d.   Definition of "aggregate investment"

     Rule 58, as proposed, defined "aggregate investment" to mean

all amounts invested, or committed to be invested, in energy-

related companies, for which there is recourse, directly or

indirectly, to the registered holding company.  The Commission

stated that the term was intended to have a meaning similar to

that provided by rule 53.-[124]-  The language of the

definition, as proposed, did not specifically include amounts

invested by subsidiary companies that are without guaranty by, or

other recourse to, the parent holding company.  Such investments,

which are exempt under subsection (a)(1) from the requirement of

Commission approval, are intended to be included in calculating

the limitation under the rule.  The rule as adopted reflects this

intent.-[125]-   

     In terms of the types of investments encompassed, the scope

---------FOOTNOTES----------
     -[124]-  See Holding  Co. Act  Release No.  25886 (Sept. 23,
1993), 58  FR 51488  (Oct. 1,  1993).   Rule 53(a)(1)(i)  (17 CFR
250.53(a)(1)(i)) provides that aggregate investment includes

     all amounts invested, or committed to be invested, in exempt
     wholesale  generators  and  foreign utility  companies,  for
     which  there is  recourse,  directly or  indirectly, to  the
     registered holding  company.   Among other things,  the term
     includes,  but is  not  limited to,  preliminary development
     expenses  that culminate  in  the acquisition  of an  exempt
     wholesale generator  or a  foreign utility company;  and the
     fair market  value of assets acquired by an exempt wholesale
     generator or a foreign utility company from a system company
     (other  than  an exempt  wholesale  generator  or a  foreign
     utility company).

     -[125]- An indirect investment  made through an intermediate
subsidiary  will  only be  counted  once  in the  calculation  of
aggregate investment.
==========================================START OF PAGE 56======

of the definition of "aggregate investment" in rule 58 is

intended to be similar to that of rule 53.  The term thus would

include amounts actually invested in an energy-related company,

as well as amounts committed to be invested under the terms of

subscription agreements, or stand-by or other similar capital

funding agreements. 

     B.   Investments by gas registered holding companies in gas-
          related companies

     Rule 58(a)(2) exempts from the requirement of prior

Commission approval under sections 9(a)(1) and 10, pursuant to

section 9(c)(3), the acquisition by a gas registered holding

company or its subsidiary company of securities of a "gas-related

company," as defined.  Such acquisitions are not subject to any

limitation as to amount.  A "gas-related company" is defined in

the Proposing Release as a company that derives, or will derive,

substantially all of its revenues from activities permitted under

sections 2(a) and 2(b) of the GRAA and such other nonutility

activities as the Commission may, from time to time, by order

upon application under sections 9 and 10 and section 2(b) of the

GRAA, authorize a gas registered holding company to engage in,

and, in so doing, designate as gas-related for purposes of rule

58.  The rule contemplates that gas-related companies, like

energy-related companies, will derive substantially all of their

revenues from the respective activities designated in the rule. 

     1.   Definition of "Gas-Related Company"

     Some commenters question whether registered holding

companies that have only electric utility operations or that have
==========================================START OF PAGE 57======

both electric and gas utility operations should be entitled to

invest in gas-related companies on an unlimited basis under the

rule.-[126]-  The portion of rule 58 that permits such

investments reflects and depends upon findings under the GRAA

that certain activities satisfy the requirements of sections 10

and 11 of the Act.  The GRAA is available only to companies in

systems in which the holding company is registered solely by

reason of ownership of voting securities of gas utility

companies.  As a result, other registered holding company systems

are not entitled to the benefits of the GRAA or the related

provisions of rule 58.  The language of the rule has been

clarified to make this explicit.

     Several commenters raise an issue concerning the scope of

the definition of gas-related company.-[127]-  The

definition, as proposed, can be read to include companies that

derive substantially all of their revenues from only the

activities specified in section 2(a) of GRAA and activities found

by the Commission, by order, to satisfy the requirements of

section 2(b) of GRAA.  This interpretation would not, however,

take into account that some activities specifically identified in

section 2(b) as being related to the supply of natural gas (i.e.,

exploration, development, production, marketing and manufacture

of natural or manufactured gas) were found by the Commission to

be permissible under the standards of the Act prior to the

---------FOOTNOTES----------
     -[126]- Comments of CSW and Cinergy.

     -[127]- Comments of AGA, Columbia and Consolidated.
==========================================START OF PAGE 58======

enactment of the GRAA, and are not the subject of a subsequent

order under that legislation.  Under rule 58 as proposed, a gas

holding company system might be required to obtain an order under

section 2(b) of GRAA in order for these gas-related activities to

be covered by the rule's exemption.  

     Activities of the type specified in section 2(b) of GRAA

were intended to be included in the activities in which gas-

related companies may engage, regardless of whether a Commission

order approving such activities was issued under

GRAA-[128]- or under sections 9(a) and 10 prior to the

enactment of GRAA,-[129]- or both.-[130]-  In all


---------FOOTNOTES----------
     -[128]- See, e.g., Consolidated Natural Gas Co., Holding Co.
Act Release No. 26363 (Aug. 28, 1995) (sale of propane services);
Columbia Gas System, Holding Co. Act Release No. 25802 (April 22,
1993) (marketing natural gas to nonaffiliates); National Fuel Gas
Co.,  Holding  Co.  Act   Release  No.  25437  (Dec.   20,  1991)
(marketing, storage and transportation of natural gas and pricing
consultation); National Fuel Gas Co., Holding Co. Act Release No.
25265 (March 5,  1991) (exploration and development of gas supply
reserves); CNG  Transmission Corp.,  Holding Co. Act  Release No.
25239 (Jan. 9, 1991)  (development, construction and operation of
natural gas pipelines); and Consolidated Natural Gas Co., Holding
Co.  Act Release  No.  25224  (Dec.  21,  1990)  (development  of
technologies   to   enhance   the   supply,   transportation  and
utilization of natural gas).

     -[129]-  See, e.g.,  National Fuel Gas Co., Holding  Co. Act
Release No. 24381  (May 1, 1987)  (drilling and well  maintenance
and related services); Consolidated  Natural Gas Co., Holding Co.
Act  Release  No.  23023 (Aug.  5,  1983)  (sale  of natural  gas
byproducts); National  Fuel Gas Co., Holding Co.  Act Release No.
21903  (Feb.  2,  1981)  (construction   of  underground  storage
facilities); and Columbia Gas System, Holding Co. Act Release No.
13610  (Nov.  27,  1957)  (extraction  and sale  of  natural  gas
byproducts).

     -[130]-  See, e.g.,  National Fuel Gas Co., Holding  Co. Act
Release  Nos.  26181  (Dec. 6,  1994)  and  24381  (May 1,  1987)
(pipeline construction and maintenance and related services).
==========================================START OF PAGE 59======

of these cases, the Commission found that the standards of

sections 10 and 11 were satisfied, either through traditional

analysis or by means of the assumptions created by GRAA.  The

rule has been clarified to accomplish this result.

     Several commenters also note that other activities

associated with the natural gas supply chain, such as exploration

and production of associated petroleum, were contemplated to be

included in GRAA-permitted activities and should be included in

the activities permitted to be engaged in by gas-related

companies under rule 58.-[131]-  The Commission agrees

that the activities in which a gas-related company may engage

under rule 58 should be consistent with those contemplated by

GRAA.-[132]- 

     The definition, as proposed, contained a provision

permitting addition of new activities by order upon application. 

As discussed above in the context of energy-related companies,

this provision has not been included in the rule as adopted.

     The definition of a gas-related company has also been

revised, as was the definition of an energy-related company, to

permit indirect investment through intermediate subsidiaries.

     2.   Limitation on Investments in Gas-Related Companies.

     The Commission requested comment on whether a limitation on

---------FOOTNOTES----------
     -[131]- Comments of AGA and Columbia.

     -[132]-  See, e.g.,  136  Cong.Rec. S17586  (Oct. 27,  1990)
(Statement of Sen. D'Amato) (production and sale of oil and other
petroleum products  may constitute  "production" for  purposes of
GRAA,  if oil  and  natural  gas  are  present  in  the  geologic
formation underlying a particular well).
==========================================START OF PAGE 60======

investments in gas-related companies is appropriate.  Two

commenters state that no such limitation is needed.-[133]- 

They note, among other things, that because many activities

involved in the gas business are nonutility interests for

purposes of the Act, investment in such activities is necessarily

significant, and any limitation would limit the usefulness of the

rule for gas registered systems.-[134]-  In view of the

Congressional intent, evidenced by the GRAA, that gas systems be

permitted to engage in certain gas-related activities without

restriction as to amount, the Commission has not revised the rule

to add a limitation on those activities.-[135]-

     C.  Other Conditions to Use of the Rule

     The Commission sought comment on whether use of rule 58

should be conditioned on meeting other types of requirements, and

the form such conditions should take.  Commenters were invited to

address the need for additional conditions to use of the rule 58

exemption based on, for example, the financial condition of the

registered holding company system, the extent of losses

experienced by the system over recent periods and prior

bankruptcies of system companies. 

     The registered holding companies and the American Gas

Association uniformly state, for various reasons, that no further

conditions to use of rule 58 are needed in order for investors

---------FOOTNOTES----------
     -[133]- Comments of AGA and Consolidated.

     -[134]- Comments of Consolidated.

     -[135]- See the Proposing Release, 60 FR at 33647.
==========================================START OF PAGE 61======

and consumers to be protected from risks.-[136]-  One

holding company suggests that, if conditions are imposed, they

should be based on current or future facts rather than past

circumstances.-[137]-  New Orleans, however, disagrees and

suggests that use of the rule be conditioned on a demonstration

of financial viability by the holding company.  New Orleans also

recommends that consumer safeguards in the form of audit

authority and access to books and records for ratemaking

authorities be added.-[138]-

     For several reasons, the Commission believes that no

additional conditions are required in order to protect investors

and consumers from the risks of these diversified activities. 

First, as noted above, the rule addresses activities that the

---------FOOTNOTES----------
     -[136]-   Comments  of  Allegheny   (the  rule's  investment
limitation protects investors and  ratepayers, and the Commission
and  the states can monitor activities  through Form U-9C-3); AEP
(the investment limitation and the fact that these activities are
conducted    separately    from   utility    operations   provide
protections); AGA (each venture should be viewed on a prospective
basis, not on the basis of past  experience; adverse developments
can be  monitored through reports filed with  the Commission, the
FERC and state regulators); Columbia (a "no bankruptcy" condition
is  contrary to the policy of the bankruptcy laws, and bankruptcy
is irrelevant where the company emerges  with an investment grade
rating); Consolidated (the Commission can invoke its jurisdiction
if problems  are perceived); Entergy (the  Commission can monitor
investments  in   the  context   of  holding   company  financing
approvals); GPU  (the state regulators  and the FERC  can protect
ratepayers  from  risk); and  Southern  (the  rule addresses  all
conditions  necessary for  satisfaction of  section 10;  no other
conditions  are needed  to  protect against  cross-subsidization,
since  rule 58  companies are  still subject  to the  intrasystem
transaction provisions of the  Act and such transactions  must be
reported on Form U-9C-3). 

     -[137]- Comments of Columbia.

     -[138]- Comments of New Orleans.
==========================================START OF PAGE 62======

Commission has determined previously to be so closely related to

utility operations as to be in the ordinary course of business of

a registered holding company and that, in many instances, have

been approved in prior orders of the Commission under sections

9(a)(1) and 10.  In addition, reasonable limitations on exempt

investments in energy-related companies are an important feature

of the rule, designed to limit the financial exposure of the

registered system.  Finally, through the filing of Form U-9C-3

under rule 58(c), both the Commission and interested state

regulators will have the opportunity to monitor the nature and

scope of each registered holding company system's activities

pursuant to rule 58.  In view of these safeguards, the Commission

is adopting the rule without further condition.

III. Proposed Amendments to Rule 52 and Rule 45

     The Proposing Release requested comment on proposed

amendments to rules 52 and 45 under the Act, to conform the rules

to rule 58.-[139]-  Rule 52(b), as currently in effect,

exempts from the requirement of Commission approval under

sections 6(a) and 7 of the Act the issue and sale by a nonutility

subsidiary of a registered holding company of any common stock,

preferred stock, bond, note or other form of indebtedness,

subject to certain conditions.  Rule 52(d) further exempts from

the requirement of prior Commission approval under sections

9(a)(1) and 10 of the Act the acquisition by a registered holding


---------FOOTNOTES----------
     -[139]- See the discussion of  the need for these amendments
in the Proposing Release.  60 FR at 33648.
==========================================START OF PAGE 63======

company of any such security, provided that the transaction does

not involve the formation of a new subsidiary.-[140]-  

     The exemptions under rule 52(b) and 52(d), both as

previously in effect and as proposed to be amended, are broader

than the exemption in proposed rule 58.  Accordingly, the

Commission proposed to amend rule 52 to add a limitation on the

aggregate amount of securities that may be issued and sold by

energy-related companies and acquired by associate companies,

consistent with the limitation of rule 58.

     Rule 45(b) currently exempts from the requirement of

Commission approval under section 12(b) of the Act and rule 45(a)

thereunder certain investments in existing subsidiaries by means

of cash capital contributions or open account advances.  In

particular, rule 45(b)(4) exempts without limitation any capital

contribution or open account advance without interest to a

subsidiary company.  Because this provision is inconsistent with

the investment limitation in rule 58, the Commission proposed to

amend rule 45(b)(4) to conform the aggregate amount of capital

contributions and open account advances that may be made to

energy-related subsidiary companies to the limitations of rule

58.

     Few commenters express any view on the proposed amendments

to rules 52 and 45.  Two registered holding companies support


---------FOOTNOTES----------
     -[140]-    The Commission  has  proposed  to  amend rule  52
further  to expand the types  of securities that  qualify for the
exemption.    See Holding  Co. Act  Release  No. 26312  (June 20,
1995), 60 FR 33640 (June 28, 1995). 
==========================================START OF PAGE 64======

adoption of the amendments.-[141]-  An exempt holding

company opposes the amendments as unnecessary and as potentially

limiting the Commission's flexibility under rule

58.-[142]-   

     Without the proposed conforming changes, registered holding

companies could use rule 58 to make initial acquisitions of

securities of energy-related companies, and arguably could use

rules 45 and 52 to make additional unlimited acquisitions of

securities of such companies, in each instance without Commission

approval.  To permit this result would render meaningless the

limitations of rule 58 on investments in energy-related

companies.  In addition, a question would arise whether section

9(c)(3), under which rule 58 is promulgated, permits such

acquisitions of securities without Commission oversight.  The

Commission believes that the proposed amendments are necessary in

order to carry out the purposes of rule 58.  Accordingly, the

amendments are adopted in the form proposed.

IV.  Other Proposals in Connection with Rule 58

     Several commenters propose changes to other rules or

Commission orders to conform them to the provisions of rule 58. 

These proposals are discussed below.

     A.   Rule 16

     As currently in effect, rule 16 under the Act provides that

any company and its affiliates will be exempt from all

---------FOOTNOTES----------
     -[141]- Comments of Allegheny and Southern.

     -[142]- Comments of Wisconsin Energy.  
==========================================START OF PAGE 65======

obligations, duties or liabilities imposed by the Act upon

subsidiaries or affiliates of a registered holding company, if

(1) the company is not a public-utility company, (2) the company

engages primarily in certain specified activities related to the

supply of natural or manufactured gas, (3) less than 50% of the

voting stock of the company is owned by registered holding

companies, and (4) the acquisition by a registered holding

company of an interest in the company was approved by the

Commission upon application.-[143]-  Several commenters

suggest that the coverage of the rule 16 exemption be extended to

energy-related companies and gas-related companies, as defined in

rule 58, and their affiliates.-[144]-

     The Commission believes that a proposal to amend rule 16 to

make it consistent with rule 58, and to enhance its usefulness

(which is limited at present), should be considered.  Such an

amendment, however, is beyond the scope of this rulemaking. 

     B.   Existing limitations on investments in energy-related
          companies

     In the past, the Commission in some instances incorporated

conditions and limitations in certain orders approving energy-

related activities, including a requirement that an energy-

related company derive at least 50% of its revenues from






---------FOOTNOTES----------
     -[143]- 17 CFR 250.16.

     -[144]- Comments of Columbia and Consolidated.
==========================================START OF PAGE 66======

associate companies or from specified geographic

areas.-[145]-  As discussed above, these geographic and

other limitations are not included in rule 58 as

adopted.-[146]-  One commenter suggests that any 50%

limitation in an order approving the acquisition of an interest

in a business that would qualify as energy-related under rule 58

should cease to apply by virtue of the rule, without any need for

an amended order.-[147]-  

     The Commission agrees that, where an order approving the

acquisition or retention of a nonutility business by a registered

holding company system includes a limitation of the type

discussed above, and such limitation would not apply if the

interest held by the registered holding company system were

acquired under rule 58, the limitation in the order should no

longer apply.  These conditions are effectively superseded by

---------FOOTNOTES----------
     -[145]-  For  instance,   the  Commission  has   conditioned
approval  of  acquisitions  of  energy  services and  demand-side
management businesses  on  a requirement  that  at least  50%  of
revenues be derived from a specified geographic area, within  the
system's  retail service  territory and  contiguous areas.   See,
e.g.,  Entergy Corp., Holding Co. Act Release No. 25718 (Dec. 28,
1992); and Northeast Utilities, Holding Co. Act Release No. 25114
(July  3, 1990).  In addition, the registered system was required
in some instances to divest its equity interest in the nonutility
business within a  specified period.   See, e.g., Entergy  Corp.,
Holding Co. Act Release No. 25718.

     -[146]- The rule does not incorporate geographic limitations
based on the retail  service territory of the registered  holding
company system.   However,  based on  existing precedent  and the
markets   with  which  the   Commission  is  currently  familiar,
activities permitted  by  the  rule  are limited  to  the  United
States.    The rule  has been  modified  to make  this limitation
clear.

     -[147]- Comments of CSW.
==========================================START OF PAGE 67======

rule 58, and no further filings and orders are needed to

eliminate them.     C.   Associate transactions

     Several commenters suggest that transactions between an

energy-related company and some or all of its associate companies

should be exempt from the requirements of the Act and rules

thereunder,-[148]- including the rules under section 13(b)

of the Act.  Section 13(b) of the Act generally requires that

intrasystem service, sales and construction contracts be

performed in accordance with such terms and conditions as the

Commission may prescribe, either by rule or order, "as necessary

or appropriate in the public interest or for the protection of

investors or consumers and to insure that such contracts are

performed economically and efficiently for the benefit of such

associate companies, at cost, fairly and equitably allocated

among such companies."  Entergy Corporation suggests that rule 87

under the Act-[149]- be amended to provide that

transactions subject to section 13(b) do not require an order

upon application.  General Public Utilities Corporation suggests

an amendment of rule 90-[150]- to exclude transactions


---------FOOTNOTES----------
     -[148]- Comments of Entergy, GPU and Northeast.  

     -[149]- Rule 87 specifies the cases in which subsidiaries of
registered holding companies may perform services or construction
for or sell goods  to associate companies, subject to  compliance
with the "at cost" rules and certain other conditions.

     -[150]-  Rule  90  sets  forth  the  general  rule that  any
transaction  involving service,  construction  or sale  of  goods
between  a  subsidiary of  a  registered holding  company  and an
associate  company must  be performed  at cost,  as defined,  and
provides exceptions.
==========================================START OF PAGE 68======

between an energy-related company and its associates from the at-

cost standards.  Northeast Utilities suggests that all

transactions between an energy-related company and its affiliates

should be exempt from the Act.

     Section 13(b) authorizes the Commission to exempt

conditionally or unconditionally such transactions as it may

determine, by rule or order, to be consistent with the protected

interests, if such transactions "(1) are with any associate

company which does not derive, directly or indirectly, any

material part of its income from sources within the United States

and which is not a public-utility company operating within the

United States, or (2) involve special or unusual circumstances or

are not in the ordinary course of business."  It does not appear

that the Commission has previously considered its authority to

grant other exemptions from the requirements of section 13(b).    

     The commenters' requests are beyond the scope of the

proposed rulemaking.  In addition, the Commission believes that

it would be inappropriate to address the issues raised in the

limited context of the activities addressed in rule 58. 

Nonutility companies in registered holding company systems have,

in any event, substantial freedom to engage in transactions with

associate nonutility companies under rule 87(b)(1).-[151]- 

The Commission declines to accept the commenters' suggestions.

     D.   Rule 48.

     One commenter suggests that rule 48 under the Act be amended

---------FOOTNOTES----------
     -[151]- 17 CFR 250.87(b)(1).
==========================================START OF PAGE 69======

to permit energy-related companies to engage in customer

financing in connection with their energy-related

businesses.-[152]-  As noted previously, customer

financing in connection with certain energy-related activities

has been approved by order in the past.  The Commission

considered whether customer financing should be included in rule

58, either as a separate energy-related activity or as an aspect

of other energy-related activities.-[153]-  However, it

appears that an amendment to rule 48 would be the appropriate

measure to address this question.-[154]-

V.   Quarterly Reports on Form U-9C-3

     The Commission proposed that registered systems provide

periodic information with respect to all energy-related and gas-

related company subsidiaries on Form 

U-9C-3, in lieu of the separate rule 24 certificates required

under the terms of any outstanding Commission

orders.-[155]-  This procedure was intended to lessen the

reporting burden for holding companies, and to make available a

---------FOOTNOTES----------
     -[152]-  Comments  of  GPU.     Rule  48  currently  exempts
financing in  connection with  purchases by utility  customers of
standard electric and gas appliances.  17 CFR 250.48.

     -[153]- See comments of Northeast.

     -[154]- Amendment of  rule 48  is beyond the  scope of  this
rulemaking.

     -[155]-  See the Proposing Release, 60 FR at 33648.  Cinergy
suggests  that,  to the  extent  that  information on  securities
issuances  is reported on Form  U-9C-3, reports under  rule 52 on
Form  U-6B-2  reporting  the   same  information  should  not  be
required.   Such a change may  be appropriate, but is  beyond the
scope of this rulemaking.
==========================================START OF PAGE 70======

single, comprehensive report covering all energy-related and gas-

related business activities of a registered holding company for

the interested state commissions, with which the report must also

be filed.  

     The Commission requested comment on the form and content of

Form U-9C-3.  In particular, the Commission sought comment on

whether a report should be filed quarterly or on a semiannual or

other basis.  The Commission also requested comment on whether

any special reporting requirements may be needed with respect to

the revenues derived from any activities of such companies other

than the activities specified in the rule, to ensure that energy-

related and gas-related companies derive substantially all of

their revenue from such activities, as required by the rule.

     Several commenters assert that the form should not be

adopted, because Form U5S provides sufficient information to

enable regulators to protect consumers-[156]- and could be

modified to require reporting of rule 58 investments in a manner

similar to treatment of exempt wholesale generators and foreign

utility companies.-[157]-  One commenter suggests that no

reporting requirements are needed with respect to investments in

gas-related companies, since there are no limits on these

investments.-[158]-  Most commenters suggest that changes


---------FOOTNOTES----------
     -[156]- Comments of AGA.

     -[157]- Comments of Columbia. See Item 9 of Form U5S, 17 CFR
259.5s.

     -[158]- Comments of Columbia.
==========================================START OF PAGE 71======

be made to the form if it is adopted.

     With respect to the timing of reporting, one commenter, New

Orleans,-[159]- specifically approves of quarterly

filings, on the ground that regulators need quarterly reports in

order to monitor activities and institute corrective action. 

Most industry commenters, however, object to quarterly filings,

because the information in the proposed form duplicates other

periodic reports, such as that on Form U5S;-[160]- because

annual filings achieve the purpose of assuring compliance with

the conditions of the rule;-[161]- because competitors are

not burdened with preparation of the form;-[162]- because

the benefits of quarterly reporting do not justify its

costs;-[163]- and because rule 58 companies should not be

required to file more frequently than holding companies and

service companies.-[164]-  Many of these commenters

believe that annual filings are appropriate,-[165]-

although one favors semiannual reporting,-[166]- and


---------FOOTNOTES----------
     -[159]- Comments of New Orleans.

     -[160]- Comments of AGA and Columbia.

     -[161]- Comments of Entergy.

     -[162]- Comments of Allegheny.

     -[163]- Comments of Southern.

     -[164]- Id.

     -[165]- Comments of Allegheny, AGA,  Columbia, Consolidated,
Entergy and Southern.

     -[166]- Comments of Cinergy.
==========================================START OF PAGE 72======

another proposes that the bulk of the information be filed

annually, with quarterly filings used to report any changes

during the quarter.-[167]-  One commenter suggests that

the form be clarified to indicate that filings are to be made

quarterly rather than "continuously."-[168]-   The

Commission has concluded that the filing of complete and current

financial statements and other information (particularly

information on transactions between rule 58 companies and their

affiliates) in each quarterly report will facilitate appropriate

monitoring of acquisitions pursuant to the rule.  The form, as

adopted, thus requires quarterly reporting.

     Many commenters express concern with the type of reporting

required by the proposed form, particularly the required

financial statements.  The commenters believe that this

requirement is burdensome, and unnecessary, because registered

systems file consolidating financial statements in their annual

reports on Form U5S;-[169]- because separate financial

information would be required even for a company in which only a

minor investment is made;-[170]- because state regulators

---------FOOTNOTES----------
     -[167]- Comments of AEP.

     -[168]-   Comments of CSW.   The  rule has  been revised  to
clarify that the filing requirement is not continuous.

     -[169]-  Comments  of  Columbia.    Cinergy  commented  that
financial  statements should be filed with the form only upon the
initial acquisition  of securities  of an energy-related  or gas-
related   company;   thereafter,   the  consolidating   financial
statements  in   Form  U5S  would   provide  sufficient  updating
information.

     -[170]- Comments of Allegheny and Southern.
==========================================START OF PAGE 73======

are interested in nonutility operations as a whole rather than

separate components;-[171]- and because separate financial

statements would be required for each subsidiary in cases where

investments are structured through several tiers of

subsidiaries.-[172]-  The Commission believes that the

filing of financial information for each investment under rule 58

is appropriate to enable the Commission and the interested state

commissions to monitor activity under the rule.  The Commission

is, however, modifying certain of the requirements in the form as

proposed to deal with certain issues raised by commenters on the

proposal.

     The purpose of requiring financial statements is to provide

information on each significant investment, not to compel holding

companies to prepare financial statements for shell companies. 

As a result, the form, as adopted, permits consolidation of the

financial statements of downstream subsidiaries with those of the

first-tier energy-related or gas-related company,-[173]-

so long as the first-tier subsidiary owns interests only in

companies engaged in one permitted activity. 

     The Commission also recognizes that the filing of financial

statements for companies in which the registered system holds

only a small interest may be overly burdensome without offering a

---------FOOTNOTES----------
     -[171]- Comments of Southern.

     -[172]- Comments of Allegheny and Southern.

     -[173]-  As discussed  previously,  indirect  investment  in
energy-related  and  gas-related  companies through  intermediate
subsidiaries is permitted under the rule as adopted.
==========================================START OF PAGE 74======

significant measure of protection for utility shareholders and

consumers.  Accordingly, the form, as adopted, requires the

filing of financial statements only for companies in which the

registered system has at least a 50% equity or other ownership

interest.  The form provides that, for all other rule 58

companies, the registered holding company will make available to

the Commission such financial statements as are available to it.

     A number of commenters express concern that the form will

result in disclosure of confidential financial and other

commercially sensitive information that may damage the holding

company's competitive position.-[174]-  The Commission

agrees that confidentiality of certain business information is an

important concern.  As noted in the Proposing Release, however,

the form does not require reporting of sensitive information such

as identity of customers.  Further, applicants may claim

confidential treatment pursuant to rule 104 under the Act for

some items of information.  Thus, commercially sensitive

information should have adequate protection. 

     Other changes in the final form include the following.  The

filing instructions have been revised to reflect electronic

filing under the Commission's EDGAR system.-[175]-   Also,

the report for the last period in the reporting company's fiscal

year will be due 90 days, rather than 60 days, after the end of



---------FOOTNOTES----------
     -[174]- Comments of Allegheny, Columbia and Southern.

     -[175]- Comments of Consolidated and Northeast.
==========================================START OF PAGE 75======

the period.-[176]-   Finally, the form has been clarified

to require disclosure with respect to all energy-related and gas-

related companies in which investments were made during the

reporting period.-[177]-   Other specific comments were

not adopted, including a suggestion that all items except 5(b)

(relating to associate transactions) are

unnecessary.-[178]-  In addition, the form has been

revised to provide a format for reporting of the required

information and to clarify generally the filing instructions.  

     Commenters believe that no other new reporting requirements

are needed to assure that rule 58 companies derive substantially

all of their revenues from permitted activities.-[179]- 

The Commission has concluded that Form U-9C-3, together with

other existing reporting requirements, provides sufficient

information for this purpose, and that no additional new

requirements are needed.

---------FOOTNOTES----------
     -[176]- Comments of Northeast. 

     -[177]- Comments of Cinergy.

     -[178]-  Comments  of Allegheny.    While  the reporting  of
associate  transactions is a primary  purpose of the  form, it is
also intended to  solicit information through which the  staff of
the  Commission  and  interested state  commissions  can  monitor
compliance   with  the   limitations   of  the   rule,  including
limitations on the  type of  activities in which  the company  in
question is engaged. 

     -[179]- Comments of AGA (information in Form U5S is adequate
for this purpose); CSW (existing proposed  reporting requirements
could be reduced and  still provide this assurance); Consolidated
(if  further assurance is needed, a statement of compliance could
be included in the Form U5S)  and Entergy and Northeast (Form  U-
9C-3 provides sufficient information  to put regulators on notice
of other activities).
==========================================START OF PAGE 76======

VI.  Conclusion

     The Commission believes that registered holding company

systems should be relieved of the regulatory burden of having to

file multiple applications for authority to engage, through

acquisitions of securities, in nonutility activities that are

closely related to utility operations and that are of the same

character or type as those the Commission has allowed in previous

cases.  Rule 58 is intended to permit investments in energy-

related companies and gas-related companies, as defined, without

geographic limits based on the registered system's service

territory or other restrictions similar to those incorporated in

some previous orders.  The Commission believes that the

limitation of the rule on the aggregate amount that a registered

holding company system may invest, directly or indirectly, in

energy-related companies should help to assure that the public

interest and the interest of investors and consumers will not be

adversely affected by acquisitions made pursuant to the rule.  In

addition, the reporting requirements should enable the Commission

and interested state and local regulators to monitor financial

and other effects of such transactions.

REGULATORY FLEXIBILITY ACT CERTIFICATION

     Pursuant to section 605(b) of the Regulatory Flexibility

Act, the Chairman of the Commission has certified as follows:

          I, Arthur Levitt, Chairman of the Securities and
     Exchange Commission, hereby certify pursuant to 5 U.S.C.
     605(b) that proposed rule 58 and proposed amendments to
     rules 45 and 52 under the Public Utility Holding Company Act
     of 1935, as amended [15 U.S.C. 79 et seq.], together
     concerning the acquisition by a registered holding company
==========================================START OF PAGE 77======

     and its subsidiaries of securities of certain nonutility
     companies, without a filing requirement, will not have a
     significant impact on a substantial number of small
     businesses.  The reason for this certification is that it
     does not appear that any small businesses would be affected
     by the proposed rule and rule amendments.

                                   Arthur Levitt, Chairman

     Dated: June 19, 1995

     The Commission did not receive any comments with respect to

the Chairman's certification.

COSTS AND BENEFITS

     Rule 58 will substantially decrease regulatory costs for the

twelve (12) electric and three (3) gas registered holding

companies.  In calendar year 1995, 35 applications would not have

been filed had the proposed rule 58 and related rule amendments

been in place.  Estimated savings per application would have been

approximately $28,000, including related legal, accounting, and

management costs.  Thus, for 35 applications filed in calendar

year 1995, the aggregate savings would have been approximately

$980,000 per year.  Moreover, the reduction in Commission staff

hours would have been approximately 3,800 hours (approximately 2

staff years).  The only cost to the registered holding companies

in complying with the rule will be the cost of completing and

filing Form U-9C-3 on a quarterly basis.  It is estimated that

approximately 16 hours will be required to complete each form at

an estimated cost of $100 per hour.  Assuming 56 form submissions

per year, the cost of compliance reporting would approximate

$89,600 per year.

PAPERWORK REDUCTION ACT
==========================================START OF PAGE 78======

     The proposed rule and rule amendments are subject to the

Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.) and have

been submitted to the Office of Management and Budget for

approval for use through September 30, 1998.  STATUTORY AUTHORITY

     The Commission is adopting rule 58 and amending rules 45 and

52 pursuant to sections 6, 9, 12 and 20 of the Act.

List of Subjects in 17 CFR Parts 250 and 259

     Electric utilities, Holding companies, Natural gas,

Reporting and recordkeeping requirements, Securities. 

Text of Rules

     For the reasons set out in the preamble, chapter II, title

17, of the Code of Federal Regulations is amended as follows:



PART 250 -- GENERAL RULES AND REGULATIONS, PUBLIC UTILITY HOLDING

COMPANY ACT OF 1935

     1.   The authority citation for part 250 continues to read

as follows: 

     AUTHORITY:  15 U.S.C. 79c, 79f(b), 79i(c)(3), 79t, unless

otherwise noted.



     2.   Section 250.45 is amended by revising paragraph (b)(4)

to read as follows:



      250.45  Loans, extensions of credit, donations and capital

contributions to associate companies.

          *    *    *    *    * 
==========================================START OF PAGE 79======

     (b)  Exceptions. *   *   *

     (4)  Capital contributions or open account advances, without

interest, by a company to its subsidiary company; Provided, That

capital contributions or open account advances to any energy-

related company subsidiary, as defined in  250.58, shall not be

exempt hereunder unless, after giving effect thereto, the

aggregate investment by a registered holding company or any

subsidiary thereof in such company and all other such energy-

related company subsidiaries does not exceed the limitation in 

250.58(a)(1).

                      *    *    *    *    *

     3.   Section 250.52 is amended by revising paragraph (b) to

read as follows:



      250.52 Exemption of issue and sale of certain securities.

          *    *    *    *    *

     (b)  Any subsidiary of a registered holding company which is

not a holding company, a public-utility company, an investment

company, or a fiscal or financing agency of a holding company, a

public-utility company or an investment company shall be exempt

from section 6(a) of the Act (15 U.S.C. 79f(a)) and rules

thereunder with respect to the issue and sale of any common

stock, preferred stock, bond, note or other form of indebtedness,

of which it is the issuer if:

     (1)  The issue and sale of such security are solely for the

purpose of financing the existing business of such subsidiary
==========================================START OF PAGE 80======

company; and

     (2)  The interest rates and maturity dates of any debt

security issued to an associate company are designed to parallel

the effective cost of capital of that associate company; 

Provided, That any security issued to an associate company by any

energy-related company subsidiary, as defined in  250.58, shall

not be exempt hereunder unless, after giving effect thereto, the

aggregate investment by a registered holding company or any

subsidiary thereof in such subsidiary and all other such energy-

related company subsidiaries does not exceed the limitation in 

250.58(a)(1).

          *    *    *    *    *



     4.   Section 250.58 is added to read as follows:



      250.58 Exemption of investments in certain nonutility

companies.

     (a)  Exemption from Section 9(a).  Section 9(a) of the Act

(15 U.S.C. 79i(a)) shall not apply to:

     (1)  The acquisition by a registered holding company, or a

subsidiary company thereof, of the securities of an energy-

related company; Provided, That, after giving effect to any such

acquisition, the aggregate investment by such registered holding

company and subsidiaries in all such companies does not exceed

the greater of: 

     (i) $50 million; or 
==========================================START OF PAGE 81======

     (ii) 15% of the consolidated capitalization of such

registered holding company, as reported in the registered holding

company's most recent Annual Report on Form 10-K or Quarterly

Report on Form 10-Q ( 249.308a or  249.310 of this chapter)

filed under the Securities Exchange Act of 1934, as amended (15

U.S.C. 78 et seq.); or

     (2)  The acquisition by a holding company that is registered

solely by reason of ownership of voting securities of gas utility

companies, or a subsidiary company thereof, of the securities of

a gas-related company.

     (b)  Definitions.  For purpose of this section:

     (1)  The term energy-related company shall mean any company

that, directly or indirectly through one or more affiliates,

derives or will derive substantially all of its revenues

(exclusive of revenues from temporary investments) from one or

more of the following activities within the United States:

     (i)   The rendering of energy management services and

demand-side management services;

     (ii)  The development and commercialization of

electrotechnologies related to energy conservation, storage and

conversion, energy efficiency, waste treatment, greenhouse gas

reduction, and similar innovations; 

     (iii) The ownership, operation, sale, installation and

servicing of refueling, recharging and conversion equipment and

facilities relating to electric and compressed natural gas

powered vehicles; 
==========================================START OF PAGE 82======

     (iv) The sale of electric and gas appliances; equipment to

promote new technologies, or new applications for existing

technologies, that use gas or electricity; and equipment that

enables the use of gas or electricity as an alternate fuel; and

the installation and servicing thereof; 

     (v) The brokering and marketing of energy commodities,

including but not limited to electricity, natural or manufactured

gas and other combustible fuels;

     (vi) The production, conversion, sale and distribution of

thermal energy products, such as process steam, heat, hot water,

chilled water, air conditioning, compressed air and similar

products; alternative fuels; and renewable energy resources; and

the servicing of thermal energy facilities;

     (vii) The sale of technical, operational, management, and

other similar kinds of services and expertise, developed in the

course of utility operations in such areas as power plant and

transmission system engineering, development, design and

rehabilitation; construction; maintenance and operation; fuel

procurement, delivery and management; and environmental

licensing, testing and remediation; 

     (viii) The development, ownership or operation of

"qualifying facilities," as defined under the Public Utility

Regulatory Policies Act of 1978, as amended ("PURPA"), and any

integrated thermal, steam host, or other necessary facility

constructed, developed or acquired primarily to enable the

qualifying facility to satisfy the useful thermal output
==========================================START OF PAGE 83======

requirements under PURPA;

     (ix) The ownership, operation and servicing of fuel

procurement, transportation, handling and storage facilities,

scrubbers, and resource recovery and waste water treatment

facilities; and

     (x) The development and commercialization of technologies or

processes that utilize coal waste by-products as an integral

component of such technology or process;

Provided, That any company engaged in the activities specified in

paragraphs (b)(1)(ii), (b)(1)(iii) with respect to electric

powered vehicles, (b)(1)(vi), (b)(1)(ix) or (b)(1)(x) of this

section, shall be an "energy-related company" for purposes of

this section only if the securities of such company are acquired,

directly or indirectly, by a registered holding company whose

public-utility company subsidiaries are primarily electric

utility companies; and Provided further, That any company engaged

in the activities specified in paragraph (b)(1)(iii) of this

section with respect to compressed natural gas powered vehicles,

shall be an "energy-related company" for purposes of this section

only if the securities of such company are acquired, directly or

indirectly, by a registered holding company whose public-utility

company subsidiaries are primarily gas utility companies.

     (2) The term gas-related company shall mean any company

that, directly or indirectly through one or more affiliates,

derives or will derive substantially all of its revenues

(exclusive of revenues from temporary investments) from one or
==========================================START OF PAGE 84======

more of the following activities within the United States:

     (i) Activities permitted under section 2(a) of the Gas-

Related Activities Act of 1990, 104 Stat. 2810; and

     (ii) Activities specified in section 2(b) of the Gas-Related

Activities Act and approved by order of the Commission under

sections 9 and 10 of the Act (15 U.S.C. 79i-j).

     (3) The term aggregate investment shall mean all amounts

invested or committed to be invested in energy-related companies,

for which there is recourse, directly or indirectly, to the

registered holding company or any subsidiary company thereof.

     (c)  Report on related business activities.  For each

quarter of the fiscal year of the registered holding company in

which any acquisition that is exempt under this section is made,

and for each such quarter thereafter in which the acquired

interest is held, the registered holding company shall file with

this Commission and with each state commission having

jurisdiction over the retail rates of the public-utility

subsidiary companies of such registered holding company a

Quarterly Report on Form U-9C-3 ( 259.208 of this chapter). 

Such filing shall be made within 60 days following the end of the

first three quarters of the fiscal year, and within 90 days after

the end of the fourth quarter. 



PART 259 -- FORMS PRESCRIBED UNDER THE PUBLIC UTILITY HOLDING

COMPANY ACT OF 1935

     5.   The authority citation for part 259 continues to read
==========================================START OF PAGE 85======

as follows:

     AUTHORITY:  15 U.S.C. 79e, 79f, 79g, 79j, 79l, 79m, 79n, 79q

and 79t.

     6.   Section 259.208 and Form U-9C-3 are added to read as

follows:



      259.208 Form U-9C-3, for notification of acquisition of

securities exempt from section 9(a) pursuant to rule 58 ( 250.58

of this chapter).  



     This form shall be filed pursuant to  250.58(c) as the

certificate of notification of an acquisition of securities

exempted from the application of section 9(a) of the Act (15

U.S.C.  79a et seq.) pursuant to  250.58.



[EDITORIAL NOTE:  The text of Form U-9C-3 appears in the Appendix

to this document and will not appear in the Code of Federal

Regulations.]

By the Commission.





                                   Jonathan G. Katz
                                   Secretary


February 14, 1997
==========================================START OF PAGE 86======


NOTE: This form will not appear in                               
Appendix
the Code of Federal Regulations.





                          UNITED STATES
                SECURITIES AND EXCHANGE COMMISSION
                      Washington, D.C. 20549




                           FORM U-9C-3



               QUARTERLY REPORT PURSUANT TO RULE 58









             ________________________________________
               (Name of registered holding company)






             ________________________________________
             (Address of principal executive offices)
==========================================START OF PAGE 87======

                       GENERAL INSTRUCTIONS

A.   Use of Form

     1. A reporting company, as defined herein, shall file a
report on this form within 60 days after the end of each of the
first three quarters, and within 90 days after the end of the
fourth quarter, of the fiscal year of the registered holding
company.  The period beginning on the date of effectiveness of
rule 58 and ending at the end of the quarter following the
quarter in which the rule becomes effective shall constitute the
initial period for which any report shall be filed, if
applicable.

     2. The requirement to provide specific information by means
of this form supersedes and replaces any requirement by order of
the Commission to provide identical information by means of
periodic certificates under rule 24; but does not so supersede
and replace any requirement by order to provide information by
means of an annual report on Form U-13-60.   

     3. Information with respect to reporting companies that is
required by Form U-13-60 shall be provided exclusively on that
form. 

     4. Notwithstanding the specific requirements of this form,
the Commission may informally request such further information
as, in its opinion, may be necessary or appropriate.

B.        Statements of Monetary Amounts and Deficits

     1. Amounts included in this form and in related financial
statements may be expressed in whole dollars, thousands of
dollars or hundred thousands of dollars.

     2. Deficits and other similar entries shall be indicated by
either brackets or parentheses.  An explanation should be
provided by footnote.

C.        Formal Requirements

     This form, including exhibits, shall be filed with the
Commission electronically pursuant to Regulation S-T (17 CFR
232.10 et seq.).  A conformed copy of each such report shall be
filed with each state commission having jurisdiction over the
retail rates of a public-utility company that is an associate
company of a reporting company.  Each report shall provide the
name and telephone number of the person to whom inquiries
concerning the report should be directed.

D.        Definitions
==========================================START OF PAGE 88======

     As used in this form, the word "reporting company" means an
energy-related company or gas-related company, as defined in rule
58(b).  All other words and terms have the same meaning as in the
Public Utility Holding Company Act of 1935, as amended, and the
rules and regulations thereunder.

                              ITEMS

ITEM 1 - ORGANIZATION CHART

[text of chart is available from :
     Robert P. Wason 
     Securities and Exchange Commission  
     450 Fifth Street, N.W. 
     Washington D.C. 20549 
     Telephone: 202-942-0545.]

Instructions.   

1. Complete Item 1 only for the first three calendar quarters of
the fiscal year of the registered holding company.

2. Under the caption "Name of Reporting Company," list each
energy-related and gas-related company and each system company
that directly or indirectly holds securities thereof.  Add the
designation "(new)" for each reporting company of which
securities were acquired during the period, and the designation
"(*)" for each inactive company.

3. Under the caption "Percentage of Voting Securities Held,"
state the aggregate percentage of the outstanding voting
securities of the reporting company held directly or indirectly
by the registered holding company at the end of the quarter.

4. Provide a narrative description of each reporting company's
activities during the reporting period.


ITEM 2 - ISSUANCES AND RENEWALS OF SECURITIES AND CAPITAL
CONTRIBUTIONS

[text of chart is available from :
     Robert P. Wason 
     Securities and Exchange Commission  
     450 Fifth Street, N.W. 
     Washington D.C. 20549 
     Telephone: 202-942-0545.]

Instruction.   

With respect to a transaction with an associate company, report
only the type and principal amount of securities involved. 
==========================================START OF PAGE 89======

[text of chart is available from :
     Robert P. Wason 
     Securities and Exchange Commission  
     450 Fifth Street, N.W. 
     Washington D.C. 20549 
     Telephone: 202-942-0545.]

ITEM 3 - ASSOCIATE TRANSACTIONS


Part I -- Transactions performed by reporting companies on behalf
of associate companies

[text of chart is available from :
     Robert P. Wason 
     Securities and Exchange Commission  
     450 Fifth Street, N.W. 
     Washington D.C. 20549 
     Telephone: 202-942-0545.]


Part II -- Transactions performed by associate companies on
behalf of reporting companies

[text of chart is available from :
     Robert P. Wason 
     Securities and Exchange Commission  
     450 Fifth Street, N.W. 
     Washington D.C. 20549 
     Telephone: 202-942-0545.]

Instructions.

1. This item is used to report the performance during the quarter
of contracts among reporting companies and their associate
companies, including other reporting companies, for service,
sales and construction.  A copy of any such contract not filed
previously should be provided as an exhibit pursuant to Item 6.
B.

2. Parts I and II concern transactions performed by reporting
companies on behalf of associate companies, and transactions
performed by associate companies on behalf of reporting
companies, respectively.


ITEM 4 - SUMMARY OF AGGREGATE INVESTMENT


Investments in energy-related companies:

[text of chart is available from :
==========================================START OF PAGE 90======

     Robert P. Wason 
     Securities and Exchange Commission  
     450 Fifth Street, N.W. 
     Washington D.C. 20549 
     Telephone: 202-942-0545.]

Investments in gas-related companies:

[text of chart is available from :
     Robert P. Wason 
     Securities and Exchange Commission  
     450 Fifth Street, N.W. 
     Washington D.C. 20549 
     Telephone: 202-942-0545.]

ITEM 5 - OTHER INVESTMENTS

[text of chart is available from :
     Robert P. Wason 
     Securities and Exchange Commission  
     450 Fifth Street, N.W. 
     Washington D.C. 20549 
     Telephone: 202-942-0545.]

Instruction.

This item concerns investments in energy-related and gas-related
companies that are excluded from the calculation of aggregate
investment under rule 58. 

ITEM 6 - FINANCIAL STATEMENTS AND EXHIBITS

     List all financial statements and exhibits filed as a part
of this report.

Instructions.

A.  Financial Statements

1.   Financial statements are required for reporting companies in
which the registered holding company system has at least a 50%
equity or other ownership interest.  For all other rule 58
companies, the registered holding company shall make available to
the Commission such financial statements as are available to it.

2. For each reporting company, provide a balance sheet as of the
end of the quarter and income statements for the three-month and
year-to-date periods ending as of the end of the quarter,
together with any notes thereto.  Financial statements shall be
provided only for the first three calendar quarters of the fiscal
year of the registered holding company.
==========================================START OF PAGE 91======

3. If a reporting company and each of its subsidiaries engage
exclusively in a single category of energy-related or gas-related
activity, consolidated financial statements may be filed.

4. Separate financial statements need not be filed for inactive
companies or for companies engaged solely in the ownership of
interests in energy-related or gas-related companies.

B. Exhibits

1. Copies of contracts required to be provided by Item 3 shall be
filed as exhibits.

2. A certificate stating that a copy of the report for the
previous quarter has been filed with interested state commissions
shall be filed as an exhibit.  The certificate shall provide the
names and addresses of the state commissions.



                            SIGNATURE

                                 [Registered Holding Company]

                        By:_______________
                              (Name)
                           _______________
                             (Title)
                           _______________
                              (Date)