Good morning, Chairman D'Amato and Members of the Committee. My name is Buzzy Meyer. I am Senior Vice President and General Counsel of Central and South West Corporation ("CSW") and its subsidiaries. CSW is a registered electric holding company under the Public Utility Holding Company Act of 1935, headquartered in Dallas, Texas, and I am here today on behalf of the Repeal PUHCA Now! Coalition.
I appreciate the opportunity to appear at this hearing, and I wish to acknowledge the leadership demonstrated by both the Chairman and Ranking Member of this Committee in having introduced legislation repealing the Public Utility Holding Company Act of 1935.
Mr. Chairman, as you are aware, we have been seeking relief under the Act for now many years. All who understand the Act agree that PUHCA should have been repealed some time ago. My company and the other members of the Coalition, the SEC, leading trade associations, and many other analysts and commentators, all agree that PUHCA has long outlived its usefulness. It has become a regulatory anachronism, a barrier to competition and innovation. The Act now stands like a Maginot Line-a barrier built for the last war, facing the wrong direction for the challenges of the present and the future.
My company, perhaps more than other, has experienced frustration under the Act. We have the "unique" honor of having the longest outstanding application on record, some 7 years, only to have the SEC admit that while it agreed with the merits of our request, it was essentially powerless to approve our application unless the Act were repealed.
PUHCA repeal should not be contingent on other policy and legislative issues. PUHCA repeal should not be held hostage to the debates about restructuring in the electric industry or PURPA. These are important issues that impact all stakeholders in the electric utility industry. They deserve serious study, discussion and debate and we hope Congress will give them the attention they deserve - but do it separately from consideration of S. 621.
As I noted, I am appearing today not simply on behalf of my own company, and, indeed, not simply on behalf of the registered gas or electric holding companies, but on behalf of a Coalition that seeks repeal of PUHCA.
Companies exempt from the Act - both gas and electric - also seek repeal. The potential application to them of the Act's full strictures, and the current imposition of limits on their ability to serve customers geographically or through additional utility services, hinders innovation and frustrates the further development of competitive markets.
We are limited to serving utility customers in a "single integrated" service territory. As a result, we cannot (except in limited circumstances) expand to offer services to others, even in our core business, either by expanding our operations or investing in other utilities, as can be done by non-holding company utilities.
We need prior approval from the SEC before our affiliates and subsidiaries can enter into contracts with each other. As a result, opportunities to save some costs or to operate with efficiencies, available on short notice, cannot always be seized.
We and our non-utility subsidiaries cannot issue or sell securities, or alter security rights and powers - without prior SEC approval. As a result, our capital structures are much more limited; and our ability to take advantage of financing opportunities, is more limited; and we cannot use several types of securities now widely accepted as appropriate in our industries.
We cannot invest in other lines of business - under existing SEC interpretations, without special SEC approval. We are limited to the single utility business, plus only such other businesses as are "functionally related" to the operation of a utility business. The SEC's recent efforts to provide some administrative relief, such as through Rule 58, have highlighted this point. Rule 58 does not free the registered companies from restriction. Rule 58 merely codifies the SEC's precedents of what lines of business are 'functionally related," and the SEC's previous case-by-case decision to allow companies to operate in these businesses. Notwithstanding, the characterization of others, and my own personal wish, Rule 58 does not administratively repeal the Act.
Even the exempt companies, although free of virtually all of the specific restrictions in PUHCA, are limited to serving utility customers in a specific geographic area, lest they lose their exemption. They also must consistently worry about other investments, because the SEC has the power to revoke their exemption under the "unless and except" clause.
Although they were important at the time of passage, the stringency and severity of these restrictions make little sense in today's circumstances. In the 62 years since 1935, securities markets have become much more effective and efficient. Agencies, such as Moody's and Standard & Poor's, constantly evaluate our management and operations which are reflected in our financial ratings.
FERC and State Commissions have clearer authority than was in place in 1935. The standardization of utility accounting, better staffing and more clearly defined requirements have all made rate regulation more effective. Changes fostered by other Congressional actions, new rules in FERC Orders, and state commissions, are establishing competitive markets, instead of regulation, as the mechanism to enforce efficiency and cost effectiveness in the utility business.
The SEC reached that same conclusion -- that the Act, has achieved its purposes, and now is not required for effective regulation. The costs and burdens imposed by the Act, on the SEC and its staff as well as on us, do not provide sufficient real benefit. Further, the SEC emphasized that half-way measures, such as "reform" of the Act to provide for additional exemptions or to streamline certain aspects, will not achieve the benefits of repeal.
The SEC's Report suggested that certain consumer concerns be addressed along with repeal, and the bill you introduced, Mr. Chairman, addresses all these issues. Specifically, the SEC has proposed that any repeal of the Act also include provisions 1) to ensure access to books and records required for the effective discharge of a state's regulatory responsibilities; 2) to establish federal audit authority; and 3) to establish some locus for federal oversight of intra-system transactions. The SEC also suggested that the task of carrying out those new provisions be given to FERC.
We believe S. 621 fully addresses these concerns and includes provisions to provide access to books and records, and to grant audit authority to FERC. It assures the relevant regulatory agencies will be able to audit those matters that pass costs on to consumers. By repealing PUHCA, it assures that at the federal level, there will not be inconsistent positions on affiliate costs and affiliate contracts. Those provisions reflect input from the SEC, FERC and the state commissions last year. Of course, we recognize additional changes may become necessary as the bill moves through Congress, and we look forward to working with you and the members of this Committee. In addition, any such provisions should recognize the authority which already exists, and which already addresses these important issues.
Over the years that CSW and others have advocated repeal of PUHCA, we have heard many arguments for delay or for continuation of PUHCA's unnecessary restrictions. Let me address these arguments in turn.
"Concentration of Market Power" - Some have asserted that it is essential to retain PUHCA in order to limit what they call "concentrations of market power"as the electric industry restructures. PUHCA's existing provisions actually increase the likelihood of concentrations in particular markets, because the "integration requirements" and geographic restrictions of the Act limit both registered companies and exempt companies to retail utility holdings in particular areas, and restrict the ability of more distant companies to acquire, construct or operate facilities that could compete with the local utility.
Repeal of PUHCA will not create circumstances where additional mergers will foster increased concentrations of market power. It is important to recognize several facts about mergers and market power assertions if PUHCA is repealed. First, the very same expert agencies who today substantively review merger will do so after the '35 Act is repealed. FERC will retain all of its merger authority. State Commissions will still have their authority to approve, block or condition mergers that they have today under state law. The Department of Justice (DOJ) will retain its antitrust authority under the Sherman Anti-Trust Act. the Federal Trade Commission and the DOJ will retain their authority under the Hart-Scott-Rodino Act.
"Consumer Protections" - Others assert that PUHCA is part of an essential group of consumer protections, and that repeal cannot occur without those protections. Let me state the obvious: the ultimate consumer protection is the rate making authority of the state commissions and FERC. These bodies have plenary authority to disallow any costs which may be borne by the ratepayer's But, in any event, S. 621 fully addresses concerns about consumer protections.
"Just Wait for the Package" - Last, there are those who agree with us -and argue that PUHCA is not needed. But they urge this Committee and Congress to wait - wait for electric industry restructuring.
For all the reasons I have already given, and as the representatives from the gas industry will point out, PUHCA repeal can and should go forward without waiting for electric industry restructuring. Electric, industry restructuring issues will be dealt with, but they deserve full and thoughtful consideration. The Energy Committee has held several workshops and has more scheduled. FERC is carrying on that process at the wholesale level, and almost all the states have some consideration of that process underway, with several actively implementing competition programs. But PUHCA prevents some aspects of the proper experimentation that the states wish to undertake from going forward. Do not burden this significant step forward by including other matters. Let the process of experimentation, consideration and development occur on the other issues, which will ripen to conclusion in their turn.
SEC Chairman Levitt, at the Commission meeting adopting the SEC's report, noted the extraordinary power granted by PUCHA - the authority to refashion the structure and business practices of an entire industry. Commissioner Isaac Hunt has stated that PUHCA is the most restrictive act enforced by the SEC and that the concerns PUHCA forces the commission to focus on is adequately addressed by other Acts under its jurisdiction. The SEC's Director of Investment Management suggested that implementation of the recommendations - repeal of the Act - would facilitate consumer protection, encourage innovation and flexibility, and promote competition by acting to remove unnecessary regulation, thus enabling companies to provide energy to America's consumers in a flexible, efficient and competitive manner.
Over the past 15 years, the SEC, under Republican and Democratic Administrations has recommended to both Republican and Democratically controlled Congresses that PUHCA be repealed. We agree with the past SEC reports, and we hope that this Committee, and this Congress, will agree. The time to repeal PUHCA is now. We urge that you move quickly to consider and pass S. 621, and we look forward to working with you for its enactment.
Thank you, Mr. Chairman, for the opportunity to submit this prepared
opening statement.
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