panies. Our association believes that S. 621 moves in a positive direction toward rationalizing regulatory oversight in an increasingly competitive market. Importantly, however, the competitive market needs to function fairly and effectively before repealing the 1935 Act, so that no market participant is provided an unfair competitive advantage by virtue of its corporate structure. Our State's primary concerns with regard to any PUHCA reform include the following: ensuring that the authority of the States to regulate utility holding companies is not pre-empted or restricted; establishing a transition period which would provide States with the time necessary to obtain requisite authorities to oversee utility holding companies; clarifying State authority over affiliate transactions of multi-state holding companies, including also non-power transactions between affiliates; providing for an unequivocal State right of access to all books and records, wherever located, for the effective discharge of State oversight responsibilities; and authorizing the FERC and States to audit and investigate companies in a registered holding company system. Our association is very concerned about the recent trend toward mergers and believes that any legislation must recognize that regulation should be reduced only as competition becomes effective at preventing monopoly abuses and allowing pro-competitive change and availability of customer choice. Accordingly, the NARUC supports the establishment of a mechanism which would maintain the effective State and Federal regulation against abusive holding company practices that could place undue market power in the hands of multi-state holding companies and could harm the development of competition. While the NARUC believes PUHCA reform legislation should not pass separately from legislation to amend the Federal electric utility laws in other respects, the association would be remiss not to suggest ways to further improve S. 621, should it ultimately proceed to a Committee vote. S. 621 helps to ensure the States' ability to access multi-state holding company books and records, to audit multi-state holding companies, and regulate affiliate transactions within a holding company system. The NARUC commends the Chairman for including in this year's bill provisions added into last year's bill by the Committee that addressed the enforcement of books and records accessibility, which are similar to the approaches contained in the Energy Policy Act of 1992 and the Telecommunications Act of 1996. Because the relevant provisions of both those Acts, however, would be repealed if S. 621 were enacted in its current form, such an enforcement provision should be clarified to ensure the continued right of State commissions to obtain access to books and records of exempt wholesale generators and exempt telecommunications companies. Prior to the adoption of S. 621 by this Committee, the NARUC also requests clarification of the exemption provisions. It would be extremely helpful if the authority given to the FERC to terminate a grandfathered utility exemption under the 1935 Act were revised in order to ensure that all utility holding companies are subject to similar regulatory treatment regardless of corporate form. Also, the NARUC would support clarifying that the FERC's authority to exempt any person or transaction does not translate into an ability to exempt utility companies from State regulation under this legislation, including the ability to obtain access to books and records. While the NARUC appreciates the Committee's response to our concerns during last year's debate by changing the effective date from 12 to 18 months, in our view, a transition period of 2 years, at a minimum, would be more appropriate to enable State commissions to acquire such enabling authorities necessary for meaningful oversight of registered holding companies. For instance, in my State of Texas, as well as other States, the legislature meets just once every 2 years. In factThe CHAIRMAN. That's a good policy. [Laughter.] Mr. GEE. We believe so, yes, sir. The CHAIRMAN. As a matter of fact, we ought to try that in a national referendum. It would probably pass overwhelmingly. Maybe even for Congress. [Laughter.] Senator DODD. They would suggest we never meet. [Laughter.] The CHAIRMAN. The Texas legislature meets for only 150 days, is that right? Mr. GEE. That's correct, sir. About 5 months every 2 years. Senator GRAMM. That's just too long. The CHAIRMAN. Yes. [Laughter.] Then they go out. Mr. GEE. Unless there's a special session called by the Governor. The CHAIRMAN. That's not bad. Go ahead. Mr. GEE. In fact, our legislature The CHAIRMAN. At least we got some productive suggestions out of this hearing. [Laughter.] Mr. GEE. This wasn't necessarily the focus of my presentation. [Laughter.] But I'm glad to provide helpful advice in any respect. [Laughter.] Our legislature is meeting this year. When the Texas legislature meets, it traditionally does so, as I indicated, for just 5 months at the beginning of every other year. Therefore, if PUHCA repeal were enacted into law this year, my public utility commission would need to assess whether it required additional multi-state utility oversight authority and, if so, would need an opportunity to seek such authority from our legislature. However, because our commission would be unable to secure such authority until 1999, during such time we could be at risk of being without adequate safeguards to protect consumers from cross-subsidization risks and diversification abuses. Further, in other jurisdictions, registered holding companies could be free to restructure or to diversify into other lines of businesses, conceivably absent any State or Federal oversight. As we continue to advance and move toward a more competitive electric market, Mr. Chairman, PUHCA may indeed become less relevant. However, in the absence of a truly competitive market, we must carefully assess what safeguards are necessary to protect consumers from potential abusive practices by holding companies. We must also evaluate whether such changes are consistent with the pro-competitive changes in the electric market and do not discourage greater competition in the marketplace. For these reasons, the NARUC believes reform of PUHCA must be considered in conjunction with those changes to the Federal Power Act that support State and FERC efforts to provide utility consumers with options in emerging competitive markets. That completes my remarks, Mr. Chairman. I thank you. Let me say that we will continue to work with you. While it is my intent to schedule a markup sooner rather than later, we want to address your concerns since we want the State regulators to have the ability, particularly in the area of cross-subsidization, to monitor companies and set rates. We have been working together and have come a long way, so if you have any additional concerns, I would hope that we could have our staffs meet to work them out. Mr. GEE. Thank you, Mr. Chairman. We look forward to working with you and your staff. The CHAIRMAN. Senator Bryan. OPENING STATEMENT OF SENATOR RICHARD H. BRYAN Senator BRYAN. Thank you very much, Mr. Chairman. Is this an appropriate time for me to make a brief opening statement? The CHAIRMAN. Yes. Senator BRYAN. I thank the Chair. Mr. Chairman, as you know, I opposed this legislation during the last session of Congress and I would expect to oppose it in this session as well. My opposition to the legislation which would repeal PUHCA is not an endorsement of the current Act. Clearly, PUHCA, as currently constituted, is not the most effective way to accomplish the goals of regulating the industry. I can understand the SEC's unhappiness with its duty to enforce and administer PUHCA, and I can also understand the anxiousness to be freed from its regulatory burden by those utilities that are currently regulated by PUHCA. Unfortunately, however, in my judgment, even with the shortcomings of PUHCA, we are at this point better with PUHCA than without it. I favor, as Mr. Gee indicates, a PUHCA that is part of an overall deregulation piece of legislation, so that we do not have the standalone PUHCA repeal as is currently proposed in this legislation. My primary interest in the current discussions of electricity restructuring is to protect the consumer. It seems to me, quite simply, there are two options. One option is the current practice, which is regulated monopoly. The other is true competition. In my judgment, the legislation being considered today accomplishes neither. In essence, it creates the potential for unregulated monopolies, perhaps the worst situation from the consumer point of view. I have great confidence in the utility regulators in my own State to regulate intra-state operations, but I see no way in which they can effectively regulate inter-state and, indeed, even international activities with the kind of holding companies that are currently regulated by PUHCA. I'm afraid the legislation we are considering today is a case of putting the cart before the horse. As imperfect and out-of-date as PUHCA may be, it simply does not appear prudent to allow these large holding companies to be free from regulation, in effect, encouraging both the diversification into other industries and further consolidation of the electricity industry, before we have some assurance that competition has been achieved. I would acknowledge that much has changed in the electricity industry since the enactment of PUHCA in 1935, but there are still some things which have not. The unregulated monopolies' capability of abusing consumers is something that we still see. I would urge the Committee to act very cautiously before moving forward with this legislation. Mr. Chairman, if I may, I might note that Senator Bumpers, who is now the Ranking Member of the Senate Energy Committee, has written a letter expressing his views on this legislation. I would ask unanimous consent that his letter be made a part of the record. The CHAIRMAN. So ordered. Senator BRYAN. I thank the Chair and would simply point out that he also raises some of the concerns which I have just raised. He points out the fact that practically every organization representing consumers, including the Consumer Federation of America, the National Association of State Utility Consumer Advocates, the American Public Power Association, the National Rural Electric Cooperative Association, as well as the National Association of Regulatory Utility Commissioners, opposes the passage of stand-alone PUHCA repeal. I thank you for making that letter a part of the record and for the opportunity to express my views. The CHAIRMAN. Thank you, Senator. OPENING STATEMENT OF SENATOR PHIL GRAMM Senator GRAMM. Thank you, Mr. Chairman. Let me first say that the Public Utility Holding Company Act is the only part of the deregulation puzzle that's under the jurisdiction of this Committee. I believe the generation of electric power is not now, nor has it ever been, a natural monopoly. The benefits to the American consumer of major deregulatory efforts undertaken in the last 30 years have been huge. We need to get on with deregulating electric power generation, and I think the only way this Committee can contribute to it is to report a dramatic change in the one piece of the regulatory structure that comes under our jurisdiction. I think, obviously, there's a lot of work to be done in coming up with a final vehicle to deregulate retail purchases of electricity. We have to deal with the historic sunk costs of the industry, costs that were incurred and stranded during a period in which the Federal Government regulated the process and encouraged certain types of investments. Within those constraints of coming up with an effective vehicle to deal with stranded costs, I believe that we need to move ahead with deregulating electric power generation, allowing the consumer to make fundamental choices about buying electricity. I know, Mr. Chairman, there have been a lot of estimates about what the savings would be with full-blown deregulation of electric power generation. Obviously, any time you're talking about the impact of dramatic change, it's hard to make estimates, but when we look at the result of deregulation on everything from telecommunications to airlines to railroads, the results have been very uniform and have basically produced tremendous benefits for the economy, improvements in the competitiveness of the economy as a whole, and benefits to the consumer. Now, obviously, in order to support the repeal of PUHCA, you don't have to support full-blown deregulation. I happen to support it. But the point is that this is an important part of it and is the only part that we can contribute in terms of beginning this debate. I'm ready to see the debate begin. I'm ready to move ahead. I'm working with Congressman Bliley on a bill to try to define a timetable and regimentation for full-blown deregulation, trying to come up with a methodology whereby the FERC can oversee the decisions by the States in dealing with stranded costs. I see this, Mr. Chairman, as a major step forward and, again, I'm sure there are various Members of the Committee who would support your bill that don't support the end-point that I do, enlightenment not being equally distributed. But, in any case, I think this is a step in the right direction and I'm for it. The CHAIRMAN. Thank you, Senator. Senator Moseley-Braun. OPENING STATEMENT OF SENATOR CAROL MOSELEY-BRAUN Senator MOSELEY-BRAUN. Thank you very much, Mr. Chairman. This debate reminds me more than most of that familiar old expression that those who forget the lessons of history are doomed to repeat them. There is no small amount of irony in the fact that PUHCA came about because of the actions of an Illinoisan, Samuel Insole, who at the turn of the century bought up most of the utilities in the country and robbed and pillaged the consumers. Because of his actions, Congress moved in the direction of creating this Senator GRAMM. He went broke. [Laughter.] Senator MOSELEY-BRAUN. Yes, but he had stolen a lot of money. Senator GRAMM. We passed this bill to bail him out. Senator MOSELEY-BRAUN. He made $60 billion first. In today's dollars, it would have been $60 billion. Even though Illinois, right now, does not have but one utility that's affected by PUHCA, it will become much more relevant after a merger that's pending. Presently, there are no investor-owned utilities in Illinois that are registered under this statute. Because the history of PUHCA is so compelling, in my opinion, it seems to me that we should not rush to judgment on the repeal without knowing what the impacts are. There are still some important public policy concerns that I believe have to be considered first if we're not going to put the cart before the horse. We need to be sure before we move forward that our actions will not cause unforeseen problems for consumers. We also need to know how PUHCA repeal fits into the electric utility reform, generally. |