Congress, Administration address early restructuring

Congress, Administration address early restructuring

Patricia Lloyd Williams

The 106th Congress, which convened in January, appears to be charging full speed ahead with efforts to facilitate retail competition in the electricity industry. As of 15 April, 12 electricity bills had been introduced into the House of Representatives and eight into the Senate, with more expected to follow; the Clinton Administration had released its version of a restructuring bill; and the key House Subcommittee on Energy and Power had held its first hearing on electricity competition.

Senate Energy and Natural Resources Chairman Frank Murkowski (R-AK) and ranking minority member Jeff Bingaman (D-NM) have expressed support for action this year and are rumoured to be working on bipartisan legislation. On the House side, Commerce Committee Chairman Tom Bliley (R-VA) has said that he wants to move quickly, based on the groundwork done in the last Congress.

However, ranking minority member John Dingell (D-MI) is less enthused about the need for federal legislation. Nevertheless, Rep. Joe Barton (R-TX) has set an aggressive hearing schedule for the House Subcommittee on Energy and Power and has indicated an intent to develop consensus legislation within the subcommittee with the help of ranking minority member Ralph Hall (D-TX).

The parties appear to be moving toward consensus on some contentious issues. For example, last session saw sharp differences between those who wanted Congress to mandate a date certain for states to implement retail choice and those horrified at the thought. Now, 44 states are considering the issue, many aggressively, reducing the impetus for federal action.

Reliability has been less of a controversial issue: all parties support safe, reliable operations. The North American Electric Reliability Council has developed a consensus language that would establish a national reliability organization with affiliated regional organizations to set and enforce operating rules and procedures. The Federal Energy Regulatory Commission (FERC) would have ultimate regulatory authority over reliability standards and practices.

Repealing PUHCA

There is general, although not complete, agreement on the need to repeal or reform the Public Utility Holding Company Act (PUHCA). While the Energy Policy Act of 1992 opened wholesale markets to competition by exempting electric wholesale generators from PUHCA, it remains a significant barrier to retail competition for some companies. PUHCA was enacted in 1935 to end abuses and unfair practices in the electricity and gas industries. At the time, there was no federal regulation of electric and gas utilities.

PUHCA gave the Securities and Exchange Commission (SEC) authority to regulate the financial activities of interstate public utility holding companies. At the same time, the Federal Power Commission, predecessor to FERC, was established to regulate wholesale rates for all public utilities.

A holding company is a company that owns or controls ten per cent or more of the stock of a public utility company. Not all public utilities are holding companies. A holding company can request an exemption from SEC regulation if it meets certain conditions, the most important of which are that:

ࢀ¢ company activities are limited to intrastate operations

ࢀ¢ the holding company is a public utility with operations confined to the state in which it is organized and contiguous states.

Otherwise, the company must register with the SEC and comply with the SEC`s extensive regulatory requirements. At present there are more than 150 exempt holding companies and 16 registered holding companies among electric and gas public utilities.

Registered holding companies must obtain SEC approval for the purchase and sale of securities and assets as well as the acquisition of other companies and the establishment of subsidiaries. Despite the best efforts of the SEC to be competition-friendly, this process can be costly, time-consuming and arbitrary. An exempt company may risk losing its exemption if it expands activities beyond those on which the exemption is based.

Those calling for repeal of PUHCA note that today`s regulatory climate is much different from that of 1935. Since the operations and financial activities of holding companies and electric utilities are subject to extensive regulation by state authorities and FERC, they say it is no longer needed. They also point out that PUHCA makes it very difficult for some utilities to diversify and to participate fully in competition.

But some consumer groups, state regulators and public power entities say the potential for abuse will continue until the transition to competition is complete. They are concerned about market power issues, anticompetitive behaviour and opportunities for subsidizing a company`s unregulated businesses by regulated businesses. Others do not object to PUHCA reform but believe it should take place only in the context of comprehensive restructuring legislation.

However Congress addresses PUHCA, it will likely maintain some provisions for state and federal authorities to review books and records and to regulate some activities. The passage of any bill is the result of the political process and can depend on factors that have little to do with the merits of the issue at hand. Congress`s perception of the impact of restructuring legislation on the upcoming presidential election in the year 2000 could outweigh other factors.

Patricia Lloyd Williams is a freelance writer based in the Washington DC metropolitan area

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