The Public Utility Holding Company Act of 1997--S. 621

The Committee met at 9:34 a.m., in room SD-538 of the Dirksen Senate Office Building, Senator Alfonse M. D'Amato (Chairman of the Committee) presiding.

OPENING STATEMENT OF CHAIRMAN ALFONSE M. D'AMATO The CHAIRMAN. The Committee will come to order.

I will submit my full statement for the record so that we can hear from our witnesses. The first is Senator Murkowski, Chairman of the Energy Committee.

Before we hear from Senator Murkowski, I would like to note that the legislation we are considering is the Public Utility Holding Company Act; known as PUHCA-"puka" or "pooka"-depending on where you come from and not to be confused with PURPÅ.

[Laughter.]

Today we will be looking at S. 621, the Public Utility Holding Company Act of 1997. This bill is the same bipartisan legislation this Committee reported to the last Congress.

The bill would repeal PUHCA, eliminating the SEC's role as the primary regulator of the 15 registered public utility holding companies, giving that regulatory authority to the States and the FERC.

Let me say, as both Chairman and Ranking Member of the Senate Energy Committee, Senator Murkowski and Senator Johnston, testified last year, the repeal is necessary "to streamline regulation, promote competition, and protect utility customers." I would like to thank Senator Murkowski for appearing here today and for his untiring leadership.

I believe that this legislation would improve consumer protection and make the energy industry more competitive.

Let me point to something else. When you get a regulator, in this case the SEC, indicating they are supportive of legislation which reduces their authority, then you know that the statute has long outlived its usefulness and the purposes for which it was initially intended. Such is the case with PUHCA, and so has been the case here.

Let me again commend Senator Murkowski for his leadership, and I thank the cosponsors of this bill: Senator Dodd, Senator Sarbanes, Senator Gramm, Senator Shelby, Senator Mack, Senator Faircloth, and Senator Allard.

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This bill has broad bipartisan support from this Committee and it's my intent to move to markup and to the Floor as soon as leadership can give us time.

Senator Murkowski.

OPENING STATEMENT OF FRANK H. MURKOWSKI

A U.S. SENATOR FROM THE STATE OF ALASKA AND
CHAIRMAN OF THE SENATE COMMITTEE ON
ENERGY AND NATURAL RESOURCES

Senator MURKOWSKI. Thank you very much, Mr. Chairman. I appreciate the opportunity to appear before the Banking Committee today, and you as Chairman.

I'm not sure if it's "pooca" or "pewka." I suppose it might be somewhere in between.

Let me also thank you for having reported this bill out of your Committee last year. It is my understanding that this is the same bill that has been resubmitted in the 105th Congress.

Basically, my testimony leads to the repeal of PUHCA.
The CHAIRMAN. See, I got you doing it.

Senator MURKOWSKI. You got me already.

[Laughter.]

We used to do the "Origone"/"Orgen." Remember that?
The CHAIRMAN. Yes.

Senator MURKOWSKI. Anyway, the repeal of PUHCA is the right thing to do. Repeal is pro-consumer and it's pro-competition.

As you are aware, the electric power industry is undergoing dramatic change, and is seeking ways to become even more competitive. If there is to be robust competition, I think we have to get rid of unnecessary Federal constraints that prevent companies from adapting quickly and from responding flexibly to the changing market circumstances. This is exactly what PUHCA prevents and why PUHCA must go.

When we talk about PUHCA repeal, we think first about how it restricts the 15 registered electric and gas utility holding companies. But that is just a small part of the story. PUHCA also limits the competitive activities of hundreds of PUHCA-exempt utilities and the numerous non-utilities, all of whom want to participate fully in the electric power market. These companies won't take a variety of pro-competitive actions out of fear of becoming classified as a registered holding company. To them it's not worth getting tangled in PUHCA's sticky web of restrictions and requirements.

Mr. Chairman, some have claimed that this legislation will create a "regulatory gap" that will allow consumers to be harmed. That is simply not true. Over the past 60 years, we have seen a comprehensive State-Federal regulatory system that has been developed to protect consumers. We have the FERC and we have State utility commissions, plenty of oversight.

As I am sure you will agree, the legislation does not, nor is it intended to, allow utilities to evade appropriate regulation at the Federal and State level. But, having said that, like you, I am certainly open to improvements to the bill's consumer protection provisions as long as they are within the context of the legislation.

Mr. Chairman, just as you did last year, today you may hear from some that Congress should act on this bill only as part of a

so-called "comprehensive" legislation to restructure the entire electric power industry. That's a pretty big order. You may also hear from others who want to use this bill as a vehicle to move highly controversial matters, such as Federal pre-emption of the States, federally-ordered retail wheeling, or mandatory utility breakup. Í would urge you to reject these calls. This legislation can, and should, proceed on a stand-alone basis. Otherwise, we're not going to get it done.

The CHAIRMAN. Mr. Chairman, let me ask you as an authority who has been working in this area for many, many years, what you're saying is that there really are two views. One says, don't do anything unless you do everything. Don't make even the reforms that we agree are good and necessary because we want everything to be handled in a comprehensive energy package. Right?

Senator MURKOWSKI. That is correct.

The CHAIRMAN. The other view is held by people who, notwithstanding the merits of the bill, want to attach their pet project to the legislation. Even where there is no consensus on the issues they raise, they would rather have no reform than have to give up their issues.

Senator MURKOWSKI. Or they see something moving and they want to throw something on it that wouldn't move otherwise.

The CHAIRMAN. I think it's important to get that on the record. It is one thing for people to oppose the legislation on a policy level or because they think it lacks necessary provisions, however, opposing the legislation because it's not loaded with people's pet projects will simply lead to us doing nothing.

Senator MURKOWSKI. The Chairman is correct. We have been pursuing deregulation of the electric industry on the theory that the industry isn't broke. We're not there to fix it, but we're there to make it more competitive and reduce costs, if we can. We're going very slow. We're going through a workshop process to develop legislation, as opposed to just dumping in legislation because it's a very complex industry.

I would urge, therefore, that there not be a linkage to action on PUHCA repeal with other legislation. Furthermore, Mr. Chairman, pro-consumer PUHCA reform should not be held "hostage" to unacceptable proposals. I think each should rise on its own merits.

As you are aware, the Energy Committee, as I have indicated, is holding a comprehensive series of hearings and workshops on competitive change in the electric industry. Through this process, the Energy Committee will determine what changes, if any—and I highlight, if any—are necessary to the utility laws that are jurisdictional to our own committee. The Energy Committee will continue this process. We will legislate if and when we are convinced that legislation will benefit the consumer, as will PUHCA repeal.

In conclusion, Mr. Chairman, PUHCA is now in its 60th year. It was designed to cure the problems of a now long-gone, Depressionera industry structure. Having done its job, it's now time to retire PUHCA. I look forward to working with you and other Members of the Committee when you take this matter up to the Floor.

Let me just conclude by making a couple of points relative to the pros and cons and the case for PUHCA.

The suggestion and the concern has been expressed that PUHCA prevents mega-mergers. The argument that PUHCA prevents utility mega-mergers which will take us back to the so-called bad old days when just a few utilities dominated the market is certainly not the case now because before a merger can take place, both the FERC and State public utility commissioners must approve it. If they object, a merger will not occur or the regulators can require the utility to make changes before they approve the merger.

Some suggest that PUHCA ensures and mandates the necessity of regulation and the argument, the repeal of PUHCA will allow multi-state utilities to invade necessary State regulation. They will be able to do something in one State and pass those costs on to the consumers of another State. That is not true. This is not a PUHCA issue. This is a State regulatory issue. This can occur now, if a State commission is not vigilant or is unwilling to do its job for the hundreds of PUHCA-exempt utilities.

This legislation affirmatively gives the State public utility commissioners the ability to properly regulate and protect consumers. It gives them the access to utility books, records necessary to do the job of rulemaking, and the willingness of State public commissioners to do their job is strictly, obviously, up to them and not a mandate or a dictate from Congress.

The last point is that PUHCA prevents risky utility diversification. The issue has been suggested that PUHCA prevents registered holding companies from diversifying outside of their service territory and outside of the utility business. PUHCA repeal would allow utilities to expand and diversify and thereby put their customers at risk if the venture fails.

The response to that, again, is that PUHCA is a restriction on the 13 registered electric holding companies, but not on the several hundred PUHCA-exempt electric utilities. State public utility commissions today face this problem for the several hundred PUHCAexempt electric utilities. They address this problem through the normal rate-making process, which this legislation enhances and aids by giving State commissions expanded access to utility books and records.

That's the case as I see it, Mr. Chairman, and I thank you for the opportunity to be with you today. I would be happy to respond to any questions, and I would encourage the Committee to move on this as expeditiously as possible because there is a significant need for it.

The CHAIRMAN. I'm just going to ask one question, Senator.

Is it your belief that the repeal and the modification of PUHCA, as we have outlined in this bill, would help consumers and result in lower energy cost?

Senator MURKOWSKI. It would help consumers, it would provide more competitiveness, and it would result ultimately in lower energy costs and more efficiency in the industry.

The CHAIRMAN. I think that should be, and is, everyone's goal. I want to thank you for your testimony.

Senator Reed, do you have any questions or statements that you would like to make at this time?

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