Now, if we haven't yet had an agreement on the provision, that's simply because we haven't had the lawyers together in a room for 3 or 4 hours to work out definitive language.

So let's get together; if there is a question as to whether or not the language is specific enough, it should be taken care of. I am a little bit distressed to hear that at this point, after 2 years, this is still an open question because I thought that the bill guarantees the States' rights to inspection.

I remember when I was a local town official, a certain water company would charge off the costs of its operation to its other subsidiaries. It was extremely frustrating, because I couldn't get our public service commission to look at the cost charge offs in terms of cross-subsidization.

It's interesting that now the guy has become-oh, well, I won't even go into that.

[Laughter.]

It is incredible, how the rich and powerful can say one thing and do another. They even buy newspapers and say it.

The company ripped off everybody by charging all service charges to different subsidiaries and at the same time using employees, officers, and company resources to subsidize subsidiary operations. Cross-subsidization as well as unfair cost pass-throughs like these are what my colleagues are concerned about. So am I.

We will see to it that these abuses cannot happen. If you have some time, and you have some people here, when we get finished with this hearing, let's sit down and see to it that that question is addressed.

I know Senator Gramm shares that feeling, that we must ensure that the States have the authority they need. The intent of the legislation is for the States to have that authority to look at all books and records, that they not be pre-empted by the FERC. If anything, we want to make it easier for you to exercise your authority to examine books and records. At the same time, we want to ensure that the FERC has the authority they need.

If the FERC feels comfortable with the authority granted, then we can discuss in report language the affiliate transactions authority and the question of prior approval. Furthermore, we will try to clarify the provisions to ensure that they do not set a precedent against FERC authority in the future.

So I'll ask Ms. Tomasky to see how we can clarify the FERC's authority over affiliate transactions.

Ms. TOMASKY. Of course.

The CHAIRMAN. I don't see any harm in making the FERC's existing authority explicit, especially if it eases the SEC's concerns. Although Commissioner Hunt states he is willing to defer to the FERC's opinion, I don't think we want to leave that door of ambiguity open as there will definitely be problems in the future if we don't clarify now. So I think we should take care of it now. Senator MOSELEY-BRAUN. Mr. Chairman.

The CHAIRMAN. Yes.

Senator MOSELEY-BRAUN. If I may, in his testimony, Mr. Hunt, speaking from the SEC's point of view, even refers to the continuing need to ensure the protection of consumers.

I'm going to applaud the Chairman's comments because, at a minimum, we should make certain that we don't throw the baby out with the bath water, we don't get rid of the PUHCA oversight and wind up with none to take its place.

Consumers have a lot at stake here with what can be a gap effect, in which we wind up getting rid of the protections that they enjoy at this level, but those protections end up not being replaced at another level of Government and consumers find themselves at the mercy of the monopoly power of these utilities.

I appreciate the suggestion made by the Chairman that the language be looked at to make certain that those kinds of protections are written into the law or, alternatively, are made part of the report language.

Senator BRYAN. Mr. Chairman, I think I still have a couple of minutes left in my round.

The CHAIRMAN. OK.

Senator MOSELEY-BRAUN. Sorry, Senator Bryan. I apologize.
Senator BRYAN. That's all right. I agree with you.

May I just take another minute or two?

The CHAIRMAN. Did you say you agree?

Senator BRYAN. I agree with the concerns that were expressed by the Chairman because I do think if it is not the intent to preempt, but rather to include language in the report, I appreciate the Chairman's willingness to sit down and look at some language that will make that possible to clearly address.

Let me just ask Ms. Tomasky: Do you see a situation in which there should be a Federal pre-emption with respect to your contemplated authority under this proposed bill?

MS. TOMASKY. I see no reason why we would want to pre-empt the access of the States to books and records, no, sir. No circumstance at all.

Senator BRYAN. So you would agree with the observation that the Chairman made.

Ms. TOMASKY. Yes.

Senator BRYAN. Perhaps, Mr. Chairman, there is an opportunity to improve this legislation. I appreciate your willingness to do so. That may give our State regulators who are the ones out on the front line and who have the primary responsibility currently at least some comfort that, indeed, their ability to continue to regulate will be retained.

I thank the Chair. I notice that the light is beginning to show, so I will yield back my time.

The CHAIRMAN. Senator Shelby.

OPENING COMMENTS OF SENATOR RICHARD C. SHELBY

Senator SHELBY. Mr. Chairman, I had to be at another committee hearing and I apologize for that. I have a prepared statement that I would like to have made a part of the record in its entirety, if I could. Then, I just have a couple of quick remarks.

The CHAIRMAN. So ordered. It will be entered into the record.
Senator SHELBY. Thank you, Mr. Chairman.

I think, myself, the repeal or doing away with PUHCA is long overdue. A lot of things have changed, changed drastically since PUHCA was enacted. Look at the market out there.

The Senator from Illinois has left, but she talked about the consumers. I agree. We're all consumers of utilities in this country. But I believe, and I think evidence shows, that the best protection of the consumer is competition, real competition. Not creating another bureaucracy, Mr. Chairman, to oversee this and oversee that. We've been down that road before.

I hope, Mr. Chairman, with your leadership, we will be able to do away with PUHCA. It's a dinosaur. It's something that should have been dealt with 20 years ago. I would like to commend you for your leadership.

The CHAIRMAN. Thank you, Senator.

Senator Allard.

Senator ALLARD. I have three brief questions, Mr. Chairman.

The first one is to Mr. Gee. I prefer State regulation over Federal regulation on this. In 1935, when PUHCA was enacted, I think the State regulators were generally pretty weak.

Do you think that's changed today?

Mr. GEE. I think today we have, my own personal view, quite biased, obviously, some very serious, very bright, very capable people staffing our State public utility commissions who are sensitive to the concerns of addressing full and fair competition in the electric utility market.

Senator ALLARD. So you have no doubt that the States are capable of carrying on this added responsibility?

Mr. GEE. I have no doubt that they have the ability to vigorously oversee the structural changes in the market.

My concern, however, is one of timing, as my testimony points out, the fact that our statutes need to be updated to fully reflect the changes that would be occurring if PUHCA were reformed or repealed. Another concern certainly is the additional question of resources, whether State PUC's have ample and sufficient resources to oversee the competitive concerns that would arise in a growing market.

Senator ALLARD. Ms. Tomasky, do you think that the timing is right for repeal?

Ms. TOMASKY. Sir, we think that the timing is appropriate from the perspective of rate regulators. We absolutely believe that the primary responsibility for protecting consumers is the rate regulatory agencies, both State and Federal, and that those consumer protection purposes are no longer essential.

But, fundamentally, we defer to the SEC's judgment with respect to the overall need for the Act.

Senator ALLARD. Mr. Hunt, on regulation, how are you enforcing PUHCA right now? To what extent do you, at the SEC, defer to the FERC for critical decisions under the Act?

Mr. HUNT. Sir, we have been trying to administer PUHCA in what we call an aggressive way. We have been trying to level the playing field so that the 15 holding companies under the PUHCA jurisdiction and regulation can compete in the ever-changing utility field with those exempt utility companies.

We have been trying to create a level playing field to allow them to diversify. We passed an important Rule 58 under PUHCA after the report of our staff of a couple of years ago. Under that rule, we have been trying to exempt transactions to allow the regulated

utility companies to now engage in the same kind of transactions as those exempt utility companies, such as those that are primarily intra-state companies that do not come within our purview in the PUHCA.

Senator ALLARD. So you have been deferring a lot of your decisions to the FERC.

Mr. HUNT. We have been exempting a lot of transactions and in terms of the rate-making, we always defer to the FERC.

In terms of the regulatory policies we have, we have been trying to free up the utility companies from what we think is a statute that really has outlived its usefulness from the SEC point of view. The changes in the markets, the changes in financial reporting, the continued security investor protections of the 1933 and 1934 Acts, we think provide all the consumer protection that we can provide under PUHCA.

Senator ALLARD. Thank you, Mr. Chairman. I yield back the balance of my time.

The CHAIRMAN. OK. Yes, Senator Shelby.

Senator SHELBY. Mr. Chairman, I just have a couple of questions, if I could.

Is it really necessary that State commissions have authority to audit non-utility companies?

Mr. Gee, do you want to respond?

Mr. GEE. Thank you, Senator Shelby. Yes, it is.

Senator SHELBY. Why?

Mr. GEE. Because, in many instances, we have discovered a holding company has multiple operating companies and multiple subsidiaries that are set up to provide services both for their regulated companies and nonregulated companies.

Unless the State commission has the access to the books and records of the nonregulated entity as well, it will not know whether the regulated company has been fairly allocated its share of costs because many of the costs are passed through these nonregulated entities.

Senator SHELBY. You may have gone into this already when I was not here, and I apologize if you have, but what transition period is really needed upon repeal of PUHCA, and what will occur during this period? There's always a transition.

Mr. GEE. Thank you, Senator. We favor certainly the direction that the bill takes, which is to move toward giving States a reasonable transition period.

The current bill provides for an 18-month transition. Senator, we are recommending that transition period be extended to 2 years, primarily because not all of our legislatures meet every year.

As my testimony indicates, if a State commission finds that it needs some additional authority, it may have to go back to its State legislature. But in situations such as in my own State, where our legislature will not meet again until 1999, we may be without sufficient authority in order to assert our proper jurisdiction over the activities of the regulated utility company for up to 2 years.

We're concerned that there could be an interim gap in the absence of sufficient State authority.

Senator SHELBY. OK. Thank you, Mr. Chairman.
The CHAIRMAN. Senator Enzi.

OPENING COMMENTS OF SENATOR MICHAEL B. ENZI Senator ENZI. Thank you very much, Mr. Chairman. I'm pleased we're holding this hearing on the Public Utilities Holding Company Act. I have been following this issue now for about 6 years.

My daughter, who is a senior in high school in Wyoming and who is out visiting me this week, had participated in a school project where they did a practice buy on some stock and then followed it for a while to see how they did.

I asked her what stock she had picked, and she told me. I asked her why she had picked that stock. She said, well, the day before, it had this huge rise. I asked, why? She said, I don't know.

We got on the computer and we looked that company up. One of the reasons that its stock had gone up is because Senator Wallop, who of course is from Wyoming, had introduced a bill on behalf of the CMS Corporation to eliminate PUHCA. We did a little more checking on the Internet and found out what PUHCA was all about and spent about an hour and a half on it.

Of course, about the time that we were finishing up, after we had spent the hour and a half, my daughter said, so why, Dad, did you look up CMS? The company I bought was CML.

[Laughter.]

Just fate, I guess. So I have had some background in the PUHCA legislation and have also been on the Energy Council, which is the Western and Southern States that produce about 90 percent of the energy for this country. They also have looked at PUHCA reform over the years.

I came by mostly to pick up the testimony. I will read all of the information that's been presented. With that, I'll yield the balance of my time.

The CHAIRMAN. Thank you. Are there any other questions that any of the Members would like to ask of the panel?

If not

Senator BRYAN. Mr. Chairman.

The CHAIRMAN. Yes.

Senator BRYAN. It strikes me that Mr. Gee makes a very good point about the timing. The State of Texas is not alone in having a biennial legislative session. That's the experience in Nevada as well. You certainly seem to have been most responsive to the concerns about pre-emption.

Whether you agree or disagree with the legislation, whether you agree or disagree with the premise that we ought to be doing it separate as opposed to an overall comprehensive reform, I don't think anybody would intend a consequence in which something would occur and a State be unable to respond to the change in Federal law. That's a very real concern for those of us that represent States that have biennial legislative sessions which are going to adjourn before this legislation.

I do not know when in 1999 the Texas legislature meets, but in Nevada, it's the third week in January and there could be a hiatus. I would just encourage the Chairman to consider responding to that concern. It strikes me as being very reasonable.

The CHAIRMAN. Let me say, again I think that's a very reasonable request. I've been speaking to counsel and to Senator Gramm, who expressed the same concern. I think the question is how to