TROUTMAN SANDERS LLP
John D. McLanahan Direct Dial: 404-885-3180
April 9, 2001
Jonathan G. Katz, Secretary
Re: File No. S7-05-01 (submitted electronically to "rule-comments@sec.gov")
Dear Secretary Katz:
The Southern Company ("Southern") appreciates the opportunity to file comments concerning the proposed new rules pertaining to investments in Foreign Utility Companies ("FUCOs"). Southern has limited investments in FUCOs, and does not have plans to invest further in FUCOs at this time. Its existing FUCO ownership, however, requires that Southern continue to report its aggregate investment in FUCOs and comply with all pertinent orders and rules of the Commission.
Southern's extensive experience with exempt project investments, both FUCOs and domestic and foreign Exempt Wholesale Generators ("EWGS") and qualifying facilities ("QFs"), causes it to be concerned that the proposed rules and form changes, if adopted by the Securities and Exchange Commission ( the "Commission"), would introduce an unnecessary level of complexity and risk incurring needless transaction costs.
Southern hopes that the Commission will recognize that investments by registered holding companies is FUCOs have not been the source of any regulatory or financial controversy. All registered holding companies are subject to audit and corporate governance requirements that are appropriate for the protection of investors and consumers. The regulatory oversight the Commission has exercised over this process through its authorizations of registered holding company securities issuances has worked, and has worked well.
Structuring a project financing and hedging its associated risks in overseas markets has required a certain degree of organizational flexibility, which the Commission has authorized through establishing a "standard set" of authorizations and associated conditions, which are fine-tuned as required on a case by case basis. These have permitted intermediate companies to hold project development and service organizations. The new rule will not obviate the need for such authorizations. As a result, the Commission should carefully weigh the costs and benefits before adopting new rules, which will add compliance burdens without reducing the need for case by case action by the Commission.
The proposed rules also risk introducing inconsistency in the treatment of EWGs and FUCOs, which could lead to arbitrary results. An overseas EWG is subject to the same risks as an overseas FUCO. The Commission's past practice of dove-tailing its regulation of FUCOs with its EWG regulation on a case by case basis is more flexible than adopting a rule that will necessitate the Commission ruling upon immaterial departures and exceptions in order to permit workable FUCO investment programs.
Finally, the proposed revision of Form U-57 is somewhat in tension with its purposes. Frequently Form U-57 is not filed "on behalf" of a FUCO. Typically it is filed in advance of a proposed acquisition of securities of a FUCO. Frequently there is no "purchase price" for the FUCO because no purchase has occurred. Moreover, the point of disclosure of "purchase prices" is unclear. After substantial study, the Commission resolved to administer a flexible aggregate investment standard in order to protect investors, consumers, and the public interest. A "purchase price" disclosure does not appear to have meaningful regulatory purpose within the scheme of regulation adopted by the Commission or to the considerations enumerated by the Energy Policy Act.
The Commission was faced with a significant challenge when it undertook to administer the Energy Policy Act amendments to the Public Utility Holding Company Act of 1935. It succeeded in that task. The Commission should carefully consider whether any benefit might result from these new rules outweighs the new complexities they will introduce.
Southern may request that the Commission consider reply comments in this matter.
Respectfully submitted,
ATTORNEYS AT LAW
A LIMITED LIABILITY PARTNERSHIP
BANK OF AMERICA PLAZA
600 PEACHTREE STREET, N.E. - SUITE 5200
ATLANTA, GEORGIA 30308-2216
www.troutmansanders.com
TELEPHONE: 404-885-3000
john.mclanahan@troutmansanders.com Direct Fax: 404-962-6630
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 30549-0609