[Congressional Record Volume 140, Number 82 (Friday, June 24, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: June 24, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
             THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935

                                 ______


                          HON. PHILIP R. SHARP

                               of indiana

                    in the house of representatives

                         Friday, June 24, 1994

  Mr. SHARP. Mr. Speaker, I am happy to cosponsor this important 
legislation, which will restore to millions of electric ratepayers an 
important economic protection Congress conferred 59 years ago which 
recently was lost as a result of an unfortunate court decision. I 
appreciate my colleague Rick Boucher's leadership on this matter, and 
his persistence in ensuring the practical problems of this somewhat 
arcane issue are addressed.
  In 1935, following years of speculation and abuse in the electric 
utility industry, Congress enacted two statutes designed to protect 
both utility customers and investors. The Public Utility Holding 
Company Act of 1935, known as PUHCA, and the Federal Power Act, were 
crafted to work in concert, and assigned complementary powers and 
responsibilities to two newly created agencies.
  For five decades the Securities and Exchange Commission [SEC] and the 
Federal Power Agency, followed by its successor the Federal Energy 
Regulatory Commission [FERC], issued decisions guiding the electric 
industry and protecting consumers from unscrupulous or imprudent 
decisions on the part of utilities. Among the most important functions 
the agencies performed was to scrutinize transactions between 
affiliated entities within large registered utility holding companies. 
These transactions, which typically involved a subsidiary selling fuel, 
goods, or services to its parent, had been prime candidates for pre-
1935 abuses in the form of sweetheart deals. The temptation, which 
persists today, is for the sale price to be set at a higher than fair-
market level--so that the utility's shareholders receive a handsome 
payoff funded by captive ratepayers with no alternative source of 
electricity.
  Prior to the 1992 Ohio Power court decision, the temptation for 
affiliates of registered holding companies to enter into such 
sweetheart deals was moderated by the knowledge that both the SEC and 
FERC would review the affiliate transaction to ensure consumer 
interests were not jeopardized. SEC review took place before the 
contract went into effect; FERC review occurred when the parent utility 
sought to flow through the costs of the contract to its customers. As 
in all electric rate cases, if FERC found the resulting cost to 
consumers was not ``just and reasonable,'' it would deny recovery of 
some or all of the utility's rate request.

  In 1992, however, the D.C. Court of Appeals decided in the Ohio Power 
case that FERC could not review an affiliate transaction involving a 
coal purchase, based on an interpretation of the agency's 
administrative rules. While FERC has now addressed this administrative 
problem, it also has interpreted somewhat ambiguous dicta in the case 
as requiring it to dismiss similar rate complaints.
  As a result, some 49 million households in 30 States which are served 
by large registered holding companies do not enjoy the protection of 
FERC rate review in cases where the fuel is sold between affiliates of 
a registered holding company. While the SEC's review role continues, 
this alone cannot fully protect ratepayers from a utility's actions 
after the initial approval of the contract. For example, while the 
original contract price for fuel purchased from an affiliate may be 
reasonable, market conditions can change and warrant a price 
renegotiation. While it is to be fervently hoped that no utility would 
take advantage of the absence of FERC review, Congress would not be 
doing its duty if it did not close the door to the temptations that led 
to the enactment of PUHCA and the Federal Power Act nearly 60 years 
ago.
  This bill has three parts. First, it makes clear that the Federal 
Power Act authorizes FERC to review affiliate contracts, to ensure that 
rates are just and reasonable. Of course, the requirement that the SEC 
approve such transactions is maintained.
  Second, the bill establishes a rebuttable presumption that FERC will 
adopt the SEC's prior finding with respect to an interaffiliate 
transaction. This provision expresses Congress preference for 
complementary agency policies, but also acknowledges the fact that the 
SEC and FERC's responsibilities are distinct and may result in 
different findings.
  Third, the bill grandfathers the costs of affiliate transactions to 
the extent they have been recovered from ratepayers--in other words, if 
a utility in good faith has billed its customers for certain costs on 
the date of enactment, pursuant to a FERC-approved rate, FERC could not 
compel the utility to refund the costs.
  Finally, it is particularly important to restore FERC's authority 
now, at a time when registered holding companies are seeking a PUHCA 
amendment to permit them to diversify into the telecommunications 
business. While my subcommittee has not yet held a hearing on the 
merits of that proposal, and I have not reached a conclusion about it, 
I would be extremely reluctant to support such a change without the 
protection that this bill affords.
  While I do not expect all of the affected utilities to welcome this 
bill with open arms, I believe it should come as no surprise. This 
legislation merely restores the regulatory environment which existed 
for 57 years, and will not result in unfairness to any registered 
holding company. Indeed, any utility which is fulfilling its obligation 
to its customers has nothing to fear from the restoration of FERC's 
authority. I commend Mr. Boucher for his leadership in pursuing this 
important issue, and look forward to working with him to enact the 
legislation.

                          ____________________