conditions, the FERC should order the public utility to sell assets to a non-affiliated company, should require specific arm's-length transactions, and/or should share access to assets on a comparable basis. Congress should direct the FERC to take any corrective action to eliminate undue concentration in any relevant geographic, product, or market. On the other hand, PUHCA has also protected consumers from market power abuses by banning certain types of empire-building activities under sections 10 and 11. These activities should still be banned until there is effective competition to supplant the significant regulatory shortfalls which would undoubtedly occur if these activities are permitted. Consumers can face very substantial risk when participants in a concentrated market diversify into unrelated or unregulated businesses in order to benefit the shareholders. For example, a holding company's use of all its retained earnings for investment in diversified activities could jeopardize the operating companies' ability to fund operations and growth. Congress should require and provide sufficient regulatory authorities to prohibit cross-subsidies between regulated and unregulated entities. Federal law should continue to bar utility diversification which threatens captive customers and fair competition. Federal law should prevent abusive or preferential affiliate transactions. Q.3. The SEC has stated that it follows a policy of "watchful deference" to the FERC when making decisions on holding company acquisitions. What additional protection does PUHCA provide to prevent market power abuses, if the SEC already defers these decisions to the FERC? A.3. As indicated above, PUHCA places a premium on preventing the conditions that lead to abuse. As practitioners, we are skeptical of regulators' ability to detect, prevent, and remedy abuses. Afterthe-fact detection is expensive, intrusive of those companies who are acting properly but still have to submit to the same “searches" that less benign companies face, and unreliable. The strength of PUHCA's structural limits is that it reduces the opportunities to abuse. The Federal Power Act has none of the structural protections that exist in PUHCA. Moreover, the FERC in recent cases has stated that in reviewing mergers, it will not review effects upon retail customers, only upon wholesale customers. The FERC's conclusion is unlawful, because the entire purpose of the Federal Power Act was to protect the consumers. The FERC, however, says it will "defer" to States. Thus, we have the SEC deferring to the FERC, who then defers to States. NASUCA members have had the unnerving experience of being told by State commissions that they need not address a particular form of abuse because the SEC or the FERC will. Regulated utilities sometimes encourage this type of buck-passing, arguing to the SEC that the FERC will protect consumers and then arguing to the FERC that the FERC lacks the authority to do so. The solution to this problem is a uniform set of market power standards, enforced by the agency who knows the most about the issues. Simply repealing PUHCA falls far short of that solution. Q.4. SEC Rule 58 allows registered holding companies to acquire energy related subsidiaries without prior approval. Are you at all concerned over the effect Rule 58 will have on diversification and market power? Why or why not? A.4. With respect to Rule 58, we believe the SEC erred by unilaterally promulgating a rule reinterpreting the Act to provide wholesale exemptions from SEC review for investments in a number of SEC-designated categories of non-utility ventures, in which multistage holding companies registered under the Act may now invest, in the absence of any congressional authorization. We also believe the SEC violated the requirement of PUHCA which states that investments by multistage holding companies under PUHCA must be consistent with an integrated public utility system, when it promulgated a rule which automatically exempts a number of categories of non-utility ventures from PUHCA's integration requirement. This allows millions of dollars in unregulated investment, and fails to require the SEC's case-specific review or their prior authorization of non-utility ventures, thus effecting an administrative repeal of part of the integration requirement. Accordingly, both NASUCA and the Ohio Consumers' Counsel have appealed this rule. I understand that the Banking Committee is holding a hearing As you know, the Energy and Natural Resources Committee is Re On January 30 I introduced S. 237, the Electric Consumers supplier - currently pending in the Energy Committee. I believe it would be unwise for Congress to repeal PUHCA on a Honorable Alfonse M. D'Amato April 29, 1997 Advocates, the American Public Power Association, the National Rural Electric Cooperative Association and the National Association of Regulatory Utility Commissioners, opposes passaçe of stand-alone PURCA repeal. Not surprisingly, the only entities supporting your legislation are the investor-owned utilities regulated pursuant to PUHCA. PUHCA was enacted, in part, because state utility commissions did not have adequate authority to oversee the activities of utility companies operating in a multitude of states through separate subsidiaries. While certain elements of the Act have become cutdated and the Securities and Exchange Commission has been less than fervent in protecting the interests of consumers, state commissions continue to lack the authority needed to oversee a utility company with operations in a multitude of states and throughout the world if PUHCA were repealed. In addition, PUHCA serves to limit the ability of utility companies to gain substantial market power in a manner that would inhibit competition among electric generators to the disadvantage of consumers. S. 621 fails to protect the captive customers of the multistate utility holding companies regulated under PUHCA. For instance, while the bill appears to give the Federal Energy Regulatory Commission broad access to holding company books and records, state commission access is more limited. The states could have a difficult time determining whether ratepayers are subsidizing nonregulated business activities. In addition, the bill fails to adequately resolve the Ohio Power issue by arguably grandfathering the thousands of existing contracts between holding company affiliates. If these contracts continue to be exempt from regulatory review utility customers could be forced to pay for transactions at prices far in excess of market rates for a long period of time. I do not oppose repealing PUHCA under any circumstance. What I do object to is Congress eliminating the Act without any thought given to the impact such action would have on electric utility Honorable Alfonse M. D'Amato April 29, 1997 Page 3 restructuring and ultimately consumers. I hope that you will reconsider your plans to attempt to pass S. 621 before Congress enacts comprehensive electric restructuring legislation. Sincerely, عنة Dale Bumpers DB:19 CC: Honorable Paul S. Sarbares Members Banking Committee |