[Congressional Record Volume 141, Number 158 (Thursday, October 12, 1995)]
[Senate]
[Pages S15127-S15129]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. D'AMATO (for himself, Mr. Murkowski, Mr. Dodd, Mr. 
        Johnston, Mr. Shelby, Mr. Mack, Mr. Faircloth, Mr. Dole, and 
        Mr. Lott):
  S. 1317. A bill to repeal the Public Utility Holding Company Act of 
1935, to enact the Public Utility Holding Company Act of 1995, and for 
other purposes; to the Committee on Banking, Housing, and Urban 
Affairs.


             the public utility holding company act of 1995

  Mr. D'AMATO. Mr. President, today I introduce the Public Utility 
Holding Company Act of 1995. I am pleased to be joined by my colleagues 
on the Banking Committee, Senators Shelby, Mack, Faircloth, and Dodd; 
the chairman and ranking member of the Energy Committee, Senators 
Murkowski and Johnston respectively; and Senate Majority Leader Dole 
and Majority Whip Lott as sponsors of the bill.
  Mr. President, this bill would repeal the Public Utility Holding 
Company Act of 1935 (``the 1935 Act'') and transfer certain regulatory 
functions from the Securities and Exchange Commission to the Federal 
Energy Regulatory Commission and the Public Service Commissions of 
various States. The bill is supported by the SEC, the energy industry, 
and Senators on both sides of the aisle.
  In June, the SEC published a comprehensive report on the 1935 Act. In 
that report, ``The Regulation of Public-

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Utility Holding Companies,'' the division of investment management 
stated that:

       The 1935 Act had accomplished its basic purpose and that 
     its remaining provisions . . . either duplicated other State 
     or Federal regulation or otherwise were no longer necessary 
     to prevent recurrence of the abuses that led to its 
     enactment.

  The SEC Division of Investment Management reviewed the history of the 
1935 act and the energy industry along with other subsequent 
administrative and legislative changes. The report's recommendation 
suggests that Congress conditionally repeal the act since the current 
regulatory system imposes significant costs, in direct administrative 
charges and foregone economies of scale and scope, that often cannot be 
justified in terms of benefits to utility investors.
  In recommending a conditional repeal, the SEC noted that 
unconditional repeal of the 1935 act could expose consumers to some of 
the same abuses that it was enacted to prevent. As SEC Chairman, Arthur 
Levitt, cautions:

       [A]s long as electric and gas utilities continue to 
     function as monopolies, the need to protect against the 
     cross-subsidization of nonutility operations will continue to 
     exist . . . the best means of guarding against cross-
     subsidization is likely to be thorough audits of books and 
     records and federal oversight of affiliate transactions.

  Mr. President, the legislation I introduce today, the Public Utility 
Company Act of 1995, would maintain the provisions of the 1935 act 
essential to consumer protection.
  This bill would eliminate many of these burdensome and duplicative 
regulations while maintaining protection for energy consumers and 
ratepayers. For example, this legislation would allow holding companies 
to diversify into new business ventures. Diversification into utility 
or non utility business will increase competition and increase the flow 
of capital as non utility companies are able to enter into joint 
ventures with holding companies. Also, the integration requirements of 
the 1935 act, which prohibit any registered holding company from owning 
utility companies in more than one State, would be eliminated. 
Permitting ownership of utility companies in more than one state would 
allow holding companies to achieve greater efficiencies and lower 
administrative costs. The resulting savings can be passed on to 
consumers in lower energy rates.
  The Public Utility Holding Company Act of 1995 provides State and 
Federal regulators with the necessary authority to examine books and 
records and conduct audits of public utility companies. It is important 
that the States be given the authority to examine the books and records 
of public utilities and be given the authority to examine the books and 
records of public utilities and their affiliates, to make sure that 
retail electricity rates are set fairly and that the cost of other 
ventures are not passed on to the captive utility rate payer. To be 
certain that this burden does not fall on the States alone, the FERC 
will share this function.
  Transferring ratemaking functions to the States and the FERC also 
eliminates the regulatory gap created by the Supreme Court's Ohio Power 
decision, which effectively stripped the FERC of its authority to 
regulate holding company wholesale rate increases.
  Mr. President, this bill puts in place the proper consumer safeguards 
to protect electric and gas utility ratepayers and stockholders from 
bearing the costs of diversification by registered holding companies.
  Mr. President, the Public Utility Holding Company Act of 1935 has 
achieved the original congressional purpose--it broke up the mammoth 
holding company structures that existed more than half a century ago. 
The registration and disclosure requirements of the Securities Act of 
1933 and the Securities Exchange Act of 1934 have become effective 
tools for the SEC to protect investors and ensure the integrity of the 
market for public utility holding company securities. Further, State 
Public Service Commissions have become effective retail energy 
regulators, who can protect their ratepayers.
  Presently, only 11 electric utility companies and 9 gas companies are 
subject to the 1935 act; approximately 100 companies are exempt. The 20 
registered utility companies are also regulated by States and the FERC. 
The same provisions that were originally enacted to protect consumers 
and investors have become unnecessary impediments to business. For 
example, to ensure that holding companies do not further abuse power, 
the 1935 act requires that the SEC give prior approval to all utility 
acquisitions. However, these acquisitions are subject to FERC and State 
approval, as well as that of the SEC, and are reviewed to comply with 
antitrust laws. This duplicative approval system often delays the 
acquisition of a new company for months or years, while providing no 
added protection to consumers.
  Mr. President, the Banking Committee has consulted the Energy 
Committee, the SEC and the FERC as well as industry and consumer 
representatives in crafting this legislation to make sure appropriate 
regulatory authority is maintained in a new legal framework that allows 
holding companies to participate in new ventures and diversify without 
negative consequences to utility customers.
  The Banking Committee intends to hold hearings on this legislation in 
the near future. Although some would like to tie Public Utility Holding 
Company Act reform to other more controversial energy-related issues, 
the time for this legislation is now. The repeal of the 1935 act will 
increase competition in the public utility industry without 
compromising investor and consumer protection. I urge my colleagues' 
support.
  Mr. MURKOWSKI. Mr. President, I rise to cosponsor Senator D'Amato's 
legislation to reform the Public Utility Holding Company Act of 1935.
  Mr. President, this legislation is long overdue. The Public Utility 
Holding Company Act was enacted 60 years ago to curb serious abuses by 
public utilities that harmed consumers. PUHCA was needed in the 1930's, 
but now we live in a different world. By limiting activities and 
restricting corporate structure, PUHCA denies the companies that 
generate and sell electricity the flexibility necessary to respond to 
changing consumer needs and market circumstances. This legislation will 
eliminate unnecessary and costly regulation, retaining only that which 
is still needed to protect consumers.
  Over the past 60 years a comprehensive State-Federal regulatory 
system has been developed to protect consumers. In a nutshell, State 
public utility commissions regulate transactions that are intrastate in 
nature, and the Federal Energy Regulatory Commission regulates those 
that are interstate in nature.
  State public utility commissions perform their regulatory activities 
pursuant to State law, and the FERC performs its pursuant to the 
Federal Power Act. With the maturity of both State and Federal utility 
regulation--along with mature securities regulation by the Securities 
and Exchange Commission--PUHCA is now redundant at best.
  In this connection, it should be noted that in some instances PUHCA 
is counterproductive, actually interfering with effective utility rate 
regulation by the FERC. For example, in Ohio Power a Federal court held 
that the SEC's utility decisions under PUHCA preempt the FERC's 
authority over utility rates under the Federal Power Act. This 
legislation addresses that issue by giving the FERC clear and exclusive 
authority to address matters within its statutory jurisdiction. In 
short, the streamlining of the regulatory system proposed by this 
legislation will not diminish needed consumer protection. It will 
enhance it instead. If the regulatory system created by PUHCA 
benefitted consumers, then the regulatory burdens it imposes might be 
justified. But as everyone now acknowledges, PUHCA is no longer needed 
to protect consumers. There is adequate and comprehensive regulatory 
authority in other laws. As a result, regulatory costs caused by PUHCA 
are simply passed on to consumers as higher rates without any 
offsetting consumer benefits.
  Congress and the executive branch have long recognized that PUHCA 
creates serious regulatory problems, but up to now these problems have 
been addressed piecemeal. In 1978, the Public Utility Regulatory 
Policies Act provided an exemption from PUHCA for 

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certain types of electric power generators. In 1992, the Energy Policy 
Act gave additional exemptions to certain other types of electric power 
generators. The SEC is loosening its restrictions on non-utility 
activities as much as it can within the bounds of PUHCA. And the 
Congress is currently considering PUHCA exemptions to allow registered 
electric utilities to enter the telecommunications business, just the 
same as non-registered utilities.
  These are all Band-Aid fixes to PUHCA; they help, but they do not 
address the fundamental problem. The need to legislatively reform PUHCA 
was recognized by the SEC's July 1995 report ``The Regulation of 
Public-Utility Holding Companies.'' This legislation is based on its 
recommendations to Congress.
  Complete reform of PUHCA is needed, and it is justified. It is time 
to streamline and modernize the act. It is for these reasons that I am 
cosponsoring Senator D'Amato's legislation.
  Mr. President, there may be some who will try to use this legislation 
as a vehicle to restructure the electric utility industry, possibly to 
impose retail wheeling or to federally preempt State public utility 
commissions. I will strenuously resist any such effort. I have received 
assurances that Senator D'Amato is of like mind.
  This is not the time nor the place to make these kinds of changes. 
Retail wheeling and other competitive issues are not directly related 
to PUHCA reform. Moreover, retail wheeling and other Federal Power Act 
matters are entirely within the jurisdiction of the Committee on Energy 
and Natural Resources, not the Committee on Banking, Housing and Urban 
Affairs, to which this legislation will be referred. Electric utility 
issues are very complex, and they are very significant not only to 
consumers but also to this Nation's competitiveness and economic well 
being. These kinds of changes cannot, and will not be made without 
careful and complete consideration by the Committee on Energy and 
Natural Resources of all aspects of the issues and questions they 
raise.
  Mr. JOHNSTON. Mr. President, I am pleased today to join my colleagues 
in introducing the Public Utility Holding Company Act of 1995. This is 
the first step in changing a law of which I have urged reform for many 
years. The purpose of this bill is to bring into the 1990's a 60-year-
old, now-antiquated law: the Public Utility Holding Company Act of 1935 
[PUHCA]. Our goal is to do away with burdensome and duplicative 
regulation, which stifles our Nation's economic well-being, and yet 
still provide adequate protection for electricity consumers. In this 
regard, this bill effectively implements the recommendations of 
Securities and Exchange Commission Chairman Arthur Levitt.
  At the time of its enactment in 1935, PUHCA was clearly necessary. 
The aim of this New Deal era law was to eradicate the abuses of large, 
monopolistic public utility holding companies. The holding company 
structure permitted such companies to deceive investors and obstruct 
State utility regulation. Importantly, in 1935, Federal regulation of 
holding companies was nonexistent.
  Times have clearly changed. State regulators have the authority to 
protect retail ratepayers from monopolistic prices, and the Federal 
Energy Regulatory Commission [FERC] has similar authority with respect 
to wholesale ratepayers. This proposed bill does away with unnecessary 
regulation of public utility holding companies by the Securities and 
Exchange Commission, but augments the authorities of State and Federal 
utility regulators to do their jobs better.
  Times have clearly changed. State regulators have the authority to 
protect retail ratepayers from monopolistic prices, and the Federal 
Energy Regulatory Commission [FERC] has similar authority with respect 
to wholesale ratepayers. This proposed bill does away with unnecessary 
regulation of public utility holding companies by the Securities and 
Exchange Commission, but augments the authorities of State and Federal 
utility regulators to do their jobs better. Specifically, the bill 
gives FERC and the States augmented authority to review the books, 
records, and accounts of companies within holding company systems. The 
bill also gives FERC and State public utility commissions the ability 
to examine so-called affiliated transactions, that is, the authority to 
determine whether a public utility company may recover in rates any 
costs of an activity performed by an associate company, or any costs of 
goods or services acquired by public utilities from their associate 
companies.
  Although I support the goals of this bill, I wish to make one point 
clear. I understand that, in a letter to Senator D'Amato, the Federal 
Energy Regulatory Commission has raised several concerns regarding the 
specific provisions of any proposed bill which would reform PUHCA. I am 
in receipt of FERC's letter to Senator D'Amato, and am committed to 
working with the Banking Committee to achieve a resolution of any 
outstanding issues. Although I believe the bill introduced today goes a 
long way toward achieving reform of PUHCA, I believe a number of issues 
must be resolved, particularly, the way in which FERC will carry out 
its new authorities under the bill as proposed with respect to holding 
companies which were formerly exempt from PUHCA.

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