Mr. Chairman and Members of the Committee:
It is a pleasure to be here this morning to discuss S. 621, the Public Utility Holding Company Act of 1997, introduced April 22, 1997.
Under current law, the two major federal statutes affecting electric utilities are the Holding Company Act and the Federal Power Act (FPA). Both were enacted as part of the same legislation in 1935, to curb widespread financial abuses that harmed electric utility investors and electricity consumers. While there is overlap in the matters addressed by these Acts, they each have different public interest objectives. The areas of overlap are thoroughly described in testimony submitted last year to this Committee by the Chair of the Federal Energy Regulatory Commission, Elizabeth A. Moler. I Will not repeat that testimony today.
In her testimony before this Committee, Chair Moler deferred to the expertise of the Securities and Exchange Commission (SEC), which administers the Holding Company Act, as to whether the Holding Company Act should be repealed. The SEC's substantial review of the ongoing need for the Act, described in its June 1995 Report, "The Regulation of Public-Utility Holding Companies", led that Commission to ask the Congress to conditionally repeal the Act and enact certain ratepayer safeguards in its place. We agree with a fundamental premise of the SEC's report that rate regulation at the federal and state level has become the primary means of ensuring ratepayer protection against potential abuse of monopoly power by utilities that are part of holding company systems.
This is a time of enormous change for the electric utility industry. It is entirely appropriate for the Congress to reexamine the framework for regulating electric utilities, so that unnecessary restrictions on corporate activities can be eliminated. Some restrictions under the Holding Company Act can limit the ability of companies to pursue otherwise appropriate business strategies in response to emerging competition in generation markets.
At the same time, as utilities diversify and enter competitive businesses, the need to protect adequately against affiliate abuse becomes all the more the significant. Ratepayers need to be protected against unfair charges for goods and services provided to utilities by their unregulated affiliates. Proper cost allocation is also essential -- both to ensure that ratepayers do not bear the costs of non-utility business activity and to ensure that utilities do not enjoy an unfair advantage in competitive markets by virtue of improper ratepayer subsidies.
From a ratepayer protection point of view, we believe that the Holding Company Act can be repealed without jeopardizing consumer protection, so long as certain issues are adequately addressed. In her testimony last year, Chair Moler identified these issues:
Mr. Chairman, since the hearing on this matter you held last year, your staff has worked cooperatively with staff of the FERC to fashion provisions that address the specific concerns we had with the legislation before the Committee last year. That effort was very productive, and resulted in suggested changes that are fully reflected in S. 621, the bill before the Committee today.
S. 621 would repeal the Public Utility Holding Company Act of 1935. In its place, it would enact the Public Utility Holding Company Act of 1997, which would do five major things:
We believe that the provisions of S. 621 providing the FERC access to books and records (section 5) are sufficient to ensure that we can do our job as rate regulators. we appreciate your efforts to modify last year's bill to ensure that these provisions apply to all public utility holding companies. These modifications are central to our conclusion that ratepayers can continue to be protected if PUHCA is repealed.
We also believe that the grandfather provision (section 12) and the savings clause (section 8) have been properly clarified to address our previous concerns. We also have no objection to the requirement under section 7 that we exempt certain holding companies from the books and records requirement. We defer to the state commissions on the adequacy of provisions assuring them access to books and records of holding companies and their affiliates.
On this basis we believe that if Congress follows the SEC recommendations to repeal PUHCA, S. 621 is an appropriate vehicle for doing so without impairing ratepayer protection. I thank you for your attention this morning and again for the efforts of you and your staff to accommodate our concerns.
I would be happy to answer any questions you may have.
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