[Federal Register Volume 66, Number 57 (Friday, March 23, 2001)]
[Proposed Rules]
[Pages 16158-16161]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-7254]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 257

[Release No. 35-27357; File No. S7-07-01]
RIN 3235-AI12


Electronic Recordkeeping by Public Utility Holding Companies

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Securities and Exchange Commission is proposing for public 
comment amendments to revise rules under the Public Utility Holding 
Company Act of 1935 regarding recordkeeping requirements for registered 
public utility holding companies and mutual or subsidiary service 
companies. The current rules were most recently updated in 1984 and 
allow regulated companies to preserve records using storage media such 
as paper, magnetic tape, and microfilm. The proposed amendments would 
expand the approved recordkeeping methods to allow the use of modern 
information technology resources. The Commission is proposing these 
rule amendments in response to the passage of the Electronic Signatures 
in Global and National Commerce Act, which encourages federal agencies 
to accommodate electronic recordkeeping.

DATES: Comments must be received on or before April 23, 2001.

ADDRESSES: Comments should be submitted in triplicate to Jonathan G. 
Katz, Secretary, Securities and Exchange Commission, 450 5th Street, 
NW., Washington, DC 20549-0609. Comments also may be submitted 
electronically at the following E-mail address: [email protected]. 
All comment letters should refer to File No. S7-07-01; this file number 
should be included in the subject line if E-mail is used. Comment 
letters will be available for public inspection and copying in the 
Commission's Public Reference Room, 450 5th Street, NW., Washington, DC 
Electronically submitted comment letters also will be posted on the 
Commission's Internet web site (http://www.sec.gov).\1\
---------------------------------------------------------------------------

    \1\ We do not edit personal identifying information, such as 
names or E-mail addresses, from electronic submissions. Submit only 
information you wish to make publicly available.

FOR FURTHER INFORMATION CONTACT: Catherine A. Fisher, Assistant 
Director, Robert P. Wason, Chief Financial Analyst, or Victoria J. 
Adraktas, Attorney-Advisor, Office of Public Utility Regulation, (202) 
942-0545, Division of Investment Management, Securities and Exchange 
---------------------------------------------------------------------------
Commission, 450 5th Street, NW., Washington, DC 20549-0503.

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission 
(``Commission'') today is requesting public comment on proposed 
amendments to rule 1 (17 CFR 257.1),\2\ regarding the preservation and 
destruction of records of registered public utility holding companies 
and of mutual and subsidiary service companies, under the Public 
Utility Holding Company Act of 1935 [15 U.S.C. 79] (``Holding Company 
Act'').
---------------------------------------------------------------------------

    \2\ Unless otherwise noted, all references to rule 1 will be to 
17 CFR 257.1.
---------------------------------------------------------------------------

Executive Summary

    Federal law requires registered public utility holding companies 
and their mutual or subsidiary service companies to make and keep books 
and records.\3\ The recordkeeping requirements are a key part of the 
Commission's public utility holding company regulatory program because 
they allow us to monitor the operations of companies and to evaluate 
their compliance with federal law. The recordkeeping rules permit 
records to be preserved and maintained using storage media such as 
paper, magnetic tape, and microfilm.
---------------------------------------------------------------------------

    \3\ ``Company'' or ``companies'' means a service company subject 
to 17 CFR 250.93, or a holding company subject to 17 CFR 250.26, 
which is not an electric utility company or a gas utility company, 
and any predecessor or inactive or dissolved associate company, the 
records of which are in the possession or control of such company.
---------------------------------------------------------------------------

    Last year, Congress passed the Electronic Signatures in Global and

[[Page 16159]]

National Commerce Act (``Electronic Signatures Act,'' ``Act,'' or 
``ESIGN'') to facilitate the use of electronic records and signatures 
in interstate and foreign commerce.\4\ Consistent with the purpose and 
goals of the Electronic Signatures Act, we are proposing rule 
amendments to expand the circumstances under which companies may keep 
their records on electronic storage media. We are also proposing 
amendments to clarify and update our recordkeeping rules. The proposal 
is designed to update rule 1 to reflect and accommodate companies' use 
of modern information technology resources to maintain and index 
records.
---------------------------------------------------------------------------

    \4\ Electronic Signatures in Global and National Commerce Act, 
Pub. L. 106-229 (see Preamble).
---------------------------------------------------------------------------

I. Discussion

A. Amendments to Rule 1

    Rule 1 provides that companies may keep records in a variety of 
specified formats.\5\ In particular, subparagraphs (e) through (h) of 
the rule permit companies to store records on a variety of media, 
including paper, magnetic or punch tape, microforms, and metallic 
recording data strips. The rule also permits companies to convert paper 
records to media permitted by the rule if certain certifications and 
other requirements are met. When we proposed the amendments to the 
rules in 1983, we noted that ``[i]mportant technological changes in 
data preservation systems'' \6\ resulted in a need to revise our 
regulations governing the maintenance of required records. We also 
noted that our proposed amendments were ``not intended to restrict 
further developments.'' Nonetheless, in light of the advances in 
information technology since the rule was promulgated in 1984 and in 
particular the rapid changes in technology in recent years, we again 
believe that we should revise the standards for permissible 
recordkeeping media to allow the use of current electronic 
recordkeeping and storage resources in maintaining required records.\7\ 
Moreover, because the proposed amendments do not specify the use of any 
particular technologies, they should allow for the adoption of new 
technologies in the future.
---------------------------------------------------------------------------

    \5\ Sections 15 and 20 of the Holding Company Act authorize the 
Commission to prescribe by rule the books and records that a public 
utility holding company and its subsidiary companies must maintain. 
15 U.S.C. 79(o) and 79(t). Rule 26 (17 CFR 250.26) under the Holding 
Company Act specifies the types of records that must be kept. Rule 1 
generally specifies where and for how long these records must be 
kept. Subsections (c) and (d) of rule 1 provide that records must be 
stored in a reasonably protected space and be ``readily available 
for inspection by authorized representatives of regulatory agencies 
concerned.''
    \6\ Proposed Rulemaking, Rules Governing the Preservation of 
Records of Registered Holding Companies and their Mutual or 
Subsidiary Service Companies,'' Release No. 35-23049 (Sept. 19, 
1983) 48 FR 41779.
    \7\ We recognize that the standards for electronic recordkeeping 
we are proposing for registered public utility holding companies are 
different from rules we have adopted for broker-dealers, which 
require brokerage records to be preserved in a non-rewritable, non-
erasable (WORM) format. There are, however, significant differences 
between the industries of which they are members. In addition, we 
have not experienced any significant problems with registered 
holding companies altering stored records. In light of these 
factors, the costs of requiring registered public utility holding 
companies to invest in new electronic recordkeeping technologies may 
not be justified.
---------------------------------------------------------------------------

    We are also proposing to adopt amendments to the recordkeeping 
rules to clarify the obligation of companies to provide copies of their 
records to Commission examiners. Currently the rules require that 
records ``shall be so arranged, filed, and currently indexed that such 
records be readily available for inspection * * *'' The proposed 
amendments would make clear that (i) ``readily available'' means in no 
case more than one business day after the request; (ii) printouts or 
copies of a storage medium include legible, true, and complete 
printouts or copies of the records (or the information necessary to 
generate the record) in the medium and format in which it is stored; 
and (iii) the company must provide a means to access, search, view, 
sort, and print the records. Comment is requested on these proposals as 
well as on whether our rules should be amended in other ways to 
accommodate electronic recordkeeping?

B. Interpretation of Electronic Signatures Act

    Under the Electronic Signatures Act, an agency's recordkeeping 
requirements may be met by retaining electronic records that accurately 
reflect the information set forth in the record, and remain accessible 
to all persons who are entitled to access, in a format that can be 
accurately reproduced.\8\ The Act allows us to interpret this provision 
pursuant to our authority under the Holding Company Act.\9\ We 
anticipate that upon adoption of these amendments, we will interpret 
the Electronic Signatures Act as requiring companies to comply with 
rule 1 when they keep electronic records.
---------------------------------------------------------------------------

    \8\ ESIGN section 101(d)(1).
    \9\ ESIGN section 104(b)(1).
---------------------------------------------------------------------------

    Our interpretation of the Electronic Signatures Act must be based 
on findings that (i) the regulations are substantially justified; (ii) 
the methods selected to carry out our purposes are substantially 
equivalent to the requirements imposed on records that are not 
electronic records and will not impose unreasonable costs on the 
acceptance and use of electronic records; and (iii) the methods 
selected to carry out our purposes do not require, or accord greater 
legal status or effect to, the implementation or application of a 
specific technology or technical specification for performing the 
functions of creating, storing, generating, receiving, communicating, 
or authenticating electronic records or electronic signatures.\10\
---------------------------------------------------------------------------

    \10\ ESIGN section 104(b)(2)(C).
---------------------------------------------------------------------------

    The Electronic Signatures Act's principles of accuracy and 
accessibility are consistent with the requirements of rule 1. Our 
requirements that companies store separately duplicate copies of their 
records, and maintain procedures to safeguard them from loss, 
alteration, or destruction protect the integrity of the records and 
assure that the records are ``accurate.'' If a company separately 
stores a duplicate copy of its records, then if one copy is altered or 
damaged there will still be an accurate backup copy. Procedures to 
safeguard records from loss, alteration, or destruction make it 
possible for companies and us to be reasonably confident that the 
records have not been changed in ways that cannot otherwise be 
detected. Our requirements that companies arrange and index records, 
and that they be ready to provide printouts or copies of the records, 
make those records accessible. Companies may keep many records. Those 
records are not truly accessible unless there is an index system that 
makes it possible to find a particular record. The records are also not 
truly accessible if they cannot be printed out or copied for later use.
    We request comment on whether rule 1, as proposed to be amended, is 
consistent with the requirements of the Electronic Signatures Act.

II. General Request for Comments

    We request comment on the proposed rule amendments that are the 
subject of this release, suggestions for additional provisions or 
changes to the rule, and comments on other matters that might have an 
effect on the proposals contained in this release.

III. Cost/Benefit Analysis

    We are considering the costs and the benefits of the proposed 
amendments to rule 1. The primary benefit of the rule is the improved 
transparency and flexibility of our recordkeeping rules.
    We do not believe the proposals will impose any costs on companies. 
As described above, the proposals would

[[Page 16160]]

allow companies to maintain records in compliance with the relevant 
recordkeeping requirements in electronic storage media. Electronic 
storage is optional under the proposals. We assume that companies will 
not opt for the electronic storage option provided for in the proposals 
unless doing so is cheaper (or otherwise more efficient and, therefore, 
supported by business considerations). By contrast, we believe that 
there may be significant benefits to the proposals. As stated, because 
using electronic storage media is optional, we do not believe that 
companies will employ such media unless the benefits conferred by the 
option outweigh the costs and, therefore, electronic storage makes good 
business sense. It is our belief, therefore, that the proposals, if 
adopted would allow companies greater flexibility to make (business) 
decisions about recordkeeping and, when appropriate, opt for electronic 
storage with potential cost savings and other benefits.
    We request comment on this analysis of the costs and benefits of 
the proposed rule amendments and invite commenters to submit their own 
estimates of costs and benefits that would result from the proposal. In 
order to evaluate fully the costs and benefits associated with the 
proposed amendment, we request that commenters' estimates of the costs 
and benefits of the proposed amendments be accompanied by specific 
empirical data supporting their estimates.

IV. Paperwork Reduction Act

    The proposals do not require a new collection of information. They 
affect only the manner in which, pursuant to rule 1, registrants can 
store the information that must be collected under rule 26 (17 CFR 
250.26). In connection with rule 26, the Commission submitted to the 
Office of Management and Budget, pursuant to the Paperwork Reduction 
Act, a request for approval and received an OMB control number for the 
rule, OMB Control No. 3235-0183.

V. Regulatory Flexibility Act Certification

    Pursuant to section 605(b) of the Regulatory Flexibility Act 
(U.S.C. 605(b)), the Chairman of the Commission has certified that the 
proposed amendment would not, if adopted, have a significant economic 
impact on a substantial number of small entities. The amendment would 
enable registered public utility holding companies and their mutual or 
subsidiary service companies to retain certain books and records in 
electronic format so long as the electronic record is accurate and 
accessible to those entitled to access it. The amendment is designed to 
facilitate the use of electronic media to fulfill the recordkeeping 
requirements under the Holding Company Act. The proposed rule amendment 
would have no economic impact on small entities because it would apply 
only to public utility holding companies registered under the Holding 
Company Act and mutual or subsidiary service companies of those 
registered holding companies. According to rule 110 (17 CFR 250.110) 
under the Holding Company Act, for purposes of compliance with the 
Regulatory Flexibility Act, a ``small business'' or ``small 
organization'' is defined as ``a holding company system whose gross 
consolidated revenues from sales of electric energy or of natural or 
manufactured gas distributed at retail for its previous fiscal year did 
not exceed $1,000,000.'' None of the public utility holding companies 
currently registered under the Holding Company Act fit the definition 
of ``small business'' or ``small organization'' and are unlikely to do 
so in the future, as operating revenues for the previous year for all 
holding company systems significantly exceeded rule 110's $1,000,000 
maximum. A signed copy of the certificate is attached to this document 
as an Appendix.

Statutory Authority

    The Commission is proposing amendments to rule 1 of the Holding 
Company Act pursuant to authority set forth in sections 15 and 20(a) of 
the Holding Company Act (15 U.S.C. 79(o) and 15 U.S.C. 79(t)).

List of Subjects in 17 CFR Part 257

    Holding companies, Reporting and recordkeeping requirements.

Text of Proposed Rule Amendments

    For reasons set forth in the preamble, Title 17, Chapter II of the 
Code of Federal Regulations is proposed to be amended as follows:

PART 257--PRESERVATION AND DESTRUCTION OF RECORDS OF REGISTERED 
PUBLIC UTILITY HOLDING COMPANIES AND OF MUTUAL AND SUBSIDIARY 
SERVICE COMPANIES

    1. The authority citation for Part 250 is added to read as follows:

    Authority: 15 U.S.C. 79(o) and 79(t), unless otherwise noted.

    2. The authority citations following Secs. 257.1 and 257.2 are 
removed.
    3. Section 257.1 is amended by:
    a. Removing paragraphs (e) through (h);
    b. Adding new paragraph (e); and
    c. Redesignating paragraphs (i) through (m), as paragraphs (f) 
through (j).
    The addition reads as follows:


Sec. 257.1  General instructions.

* * * * *
    (e)(1) Micrographic and electronic storage permitted. The records 
required to be maintained and preserved under Sec. 250.26 of this 
chapter may be maintained and preserved for the required time by, or on 
behalf of, a company on:
    (i) Micrographic media, including microfilm, microfiche, or any 
similar medium; or
    (ii) Electronic storage media, including any digital storage medium 
or system that meets the terms of this section.
    (2) General requirements. The company, or person that maintains and 
preserves records on its behalf, must:
    (i) Arrange and index the records in a way that permits easy 
location, access, and retrieval of any particular record;
    (ii) Provide promptly (but in no case more than one business day 
after the request) any of the following that the Commission (by its 
examiners or other representatives) or the directors of the company may 
request:
    (A) A legible, true, and complete copy of the record (or the 
information necessary to generate the record) in the medium and format 
in which it is stored;
    (B) A legible, true, and complete printout of the record; and
    (C) Means to access, search, view, sort, and print the records; and
    (iii) Separately store, for the time required for preservation of 
the original record, a duplicate copy of the record stored on the 
micrographic or electronic storage media or any media allowed by this 
section.
    (3) Special requirements for electronic storage media. In the case 
of records on electronic storage media, the company, or person that 
maintains and preserves records on its behalf, must establish and 
maintain procedures:
    (i) To maintain and preserve the records, so as to reasonably 
safeguard them from loss, alteration, or destruction;
    (ii) To limit access to the records to properly authorized 
personnel, the directors of the company, and the Commission (including 
its examiners and other representatives); and
    (iii) To reasonably ensure that any reproduction of a non-
electronic original record on electronic storage

[[Page 16161]]

media is complete and true, and legible when retrieved.
* * * * *

    Dated: March 19, 2001.
    By the Commission.
 Jonathan G. Katz,
Secretary.

    Note: The Appendix to the Preamble will not appear in the Code 
of Federal Regulations.

Appendix A; Regulatory Flexibility Act Certification

    I, Laura Unger, Acting Chairman of the Securities and Exchange 
Commission, hereby certify pursuant to 5 U.S.C. 605(b) that changes 
to rule 1 [17 CFR 257.1] under the Public Utility Holding Company 
Act of 1935 (``Act''), as amended, would not, if adopted, have a 
significant economic impact on a substantial number of small 
entities in the United States:
    The proposed rule amendment would have no economic impact on 
small entities because it would apply only to public utility holding 
companies registered under the Act and mutual or subsidiary service 
companies of those registered holding companies. According to rule 
110 [17 CFR 250.110] under the Act, for purposes of compliance with 
the Regulatory Flexibility Act, a ``small business'' or ``small 
organization'' is defined as ``a holding company system whose gross 
consolidated revenues from sales of electric energy or of natural or 
manufactured gas distributed at retail for its previous fiscal year 
did not exceed $1,000,000.'' None of the public utility holding 
companies currently registered under the Act fit the definition of 
``small business'' or ``small organization'' and none are unlikely 
to do so in the future, as operating revenues for the previous year 
for all holding company systems significantly exceeded rule 110's 
$1,000,000 maximum. Moreover, the amendment, designed to facilitate 
the use of electronic media, merely expands the type of electronic 
media registered holding companies and mutual or subsidiary service 
companies may use to fulfill the recordkeeping requirements under 
the Act. The proposal is in response to the guidance and directives 
contained in the Electronic Signatures in Global Commerce Act, 
recently signed into law. The amendment will not result in a 
significant impact to the regulated companies, as it merely provides 
standards as to what types of electronic media are able to produce 
sufficient recording integrity to constitute compliance with the 
recordkeeping requirements of rule 1.
    Accordingly, the proposed amendment would not have a significant 
impact on a substantial number of small entities.


    Dated: March 16, 2001.
Laura S. Unger,
Acting Chairman.

[FR Doc. 01-7254 Filed 3-22-01; 8:45 am]
BILLING CODE 8010-01-U