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                                                       Calendar No. 584
104th Congress                                                   Report
                                SENATE

104-365                                                      2d Session
_______________________________________________________________________


 
             THE PUBLIC UTILITIES HOLDING COMPANY ACT OF 1996

                               __________

                              R E P O R T

                                 OF THE

                     COMMITTEE ON BANKING, HOUSING,
                           AND URBAN AFFAIRS
                          UNITED STATES SENATE

                              to accompany

                                S. 1317

                                     


                                     

               September 9, 1996.--Ordered to be printed


            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

  ALFONSE M. D'AMATO, New York, 
             Chairman
PAUL S. SARBANES, Maryland           PHIL GRAMM, Texas
CHRISTOPHER J. DODD, Connecticut     RICHARD C. SHELBY, Alabama
JOHN F. KERRY, Massachusetts         CHRISTOPHER S. BOND, Missouri
RICHARD H. BRYAN, Nevada             CONNIE MACK, Florida
BARBARA BOXER, California            LAUCH FAIRCLOTH, North Carolina
CAROL MOSELEY-BRAUN, Illinois        ROBERT F. BENNETT, Utah
PATTY MURRAY, Washington             ROD GRAMS, Minnesota
                                     SHEILA FRAHM, Kansas

 Howard A. Menell, Staff Director
  Robert J. Giuffra, Jr., Chief 
              Counsel
 Philip E. Bechtel, Deputy Staff 
             Director
Steven B. Harris, Democratic Staff 
    Director and Chief Counsel
Helena Grannis, Professional Staff
      Laura S. Unger, Counsel
Mitchell Feuer, Democratic Counsel
   Andrew Lowenthal, Democratic 
     Professional Staff Member
     George E. Whittle, Editor



                            C O N T E N T S

                               __________
                                                                   Page
Introduction.....................................................     1
History of the Legislation.......................................     1
Purpose and Summary..............................................     2
Purpose and Scope................................................     3
    Background...................................................     3
        The ``unregulated'' energy industry......................     3
        The new regulatory regime--The Public Utility Holding 
          Company Act of 1935....................................     4
        The studies begin a twenty year debate on PUHCA..........     5
        Recent SEC study triggers Committee action...............     6
    The Legislation Reforming PUHCA..............................     7
        The 1935 Act has become ineffective and burdensome.......     7
        Protecting consumers from paying unfair rates............     8
        Closing the Ohio Power gap...............................    10
        Expanding the regulators' access to company books and 
          records................................................    11
        A level playing field for all............................    12
Section-by-Section Analysis of S.1317: ``The Public Utility 
  Company Act of 1996''..........................................    13
    Section 1. Short title.......................................    13
    Section 2. Findings and purposes.............................    13
    Section 3. Definitions.......................................    13
    Section 4. Repeal of the Public Utility Holding Company Act 
      of 1935....................................................    14
    Section 5. Federal access to books and records...............    14
    Section 6. State access to books and records.................    14
    Section 7. Exemption authority...............................    15
    Section 8. Affiliate transactions............................    15
    Section 9. Applicability.....................................    15
    Section 10. Effect on other regulations......................    15
    Section 11. Enforcement......................................    15
    Section 12. Savings provisions...............................    16
    Section 13. Implementation...................................    16
    Section 14. Transfer of resources............................    16
    Section 15. Effective date...................................    16
    Section 16. Authorization of appropriations..................    16
    Section 17. Conforming amendment to the Federal Power Act....    16
Regulatory Impact Statement......................................    16
Changes in Existing Law..........................................    17
Cost of Legislation..............................................    17


                                                       Calendar No. 584
104th Congress                                                   Report
                                 SENATE

 2d Session                                                     104-365
_______________________________________________________________________


            THE PUBLIC UTILITIES HOLDING COMPANY ACT OF 1996

                                _______
                                

               September 9, 1996.--Ordered to be printed

_______________________________________________________________________


Mr. D'Amato, from the Committee on Banking, Housing, and Urban Affairs, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 1317]

    The Committee on Banking, Housing, and Urban Affairs, to 
which was referred the bill (S. 1317) to repeal the Public 
Utility Holding Company Act of 1935, to enact the Public 
Utility Holding Company Act of 1995, and for other purposes, 
having considered the same, reports favorably thereon with an 
amendment in the nature of a substitute and recommends that the 
bill (as amended) do pass.

                              INTRODUCTION

    On June 26, 1996, the Senate Committee on Banking, Housing, 
and Urban Affairs met in legislative session and marked up and 
ordered to be reported S. 1317, a bill to repeal the Public 
Utility Holding Company Act of 1935 (``PUHCA'') and to enact 
the Public Utility Holding Company Act of 1996, and for other 
purposes, with a recommendation that the bill do pass, with an 
amendment in the nature of a substitute. The Committee's action 
was taken by a voice vote. Senators Bryan, Moseley-Braun, and 
Murray asked to be recorded as voting in the negative.

                       HISTORY OF THE LEGISLATION

    The Public Utility Holding Company Act of 1996, S. 1317, 
was introduced on October 12, 1995 by Senators D'Amato, Dodd, 
Murkowski, Johnston, Shelby, Mack, Faircloth, Dole and Lott. 
Senators Cochran, Heflin, Akaka, Coverdell, Inouye, Warner, 
Coats, Grams and Bennett were added as cosponsors. The bill has 
two purposes: first, to repeal the Public Utility Holding 
Company Act of 1935; and second, to put in place a new, less 
pervasive regulatory structure that allows for greater 
diversification in the utility industry while ensuring that 
utility customers do not pay for diversification through 
increased energy rates.
    The full Committee conducted a legislative hearing on S. 
1317 on June 6, 1996. The Committee received testimony from: 
Senator Frank H. Murkowski, Chairman of the Senate Committee on 
Energy and Natural Resources (the ``Energy Committee''); 
Senator J. Bennett Johnston, Ranking Member of the Energy 
Committee; the Honorable Elizabeth A. Moler, Chair, Federal 
Energy Regulatory Commission (the ``FERC''); Barry P. Barbash, 
Director, Division of Investment Management, Securities and 
Exchange Commission (the ``SEC''); Robert W. Gee, Chairman, 
Electricity Committee, National Association of Regulatory 
Utility Commissioners (the ``NARUC''); E. Linn Draper, Jr., 
Chairman, President & CEO, American Electric Power Company; 
Ronald J. Tanski, Vice President and General Counsel, National 
Fuel Gas Company; Lloyd Levitin, Former Chief Financial 
Officer, Pacific Enterprises; John Hughes, Executive Director 
for Technical Affairs, Electricity Consumers Resource Council 
(on behalf of Coalition for Customer Choice in Electricity, 
``ELCON''); and Larry Frimerman, Federal Liaison, Ohio 
Consumers' Counsel (on behalf of National Association of State 
Utility Consumer Advocates, ``NASUCA''). The American Gas 
Association also submitted testimony.
    Additional comments, suggestions, and assistance in 
considering and evaluating the legislation were received from 
the State regulators, the staff of the Energy Committee, the 
SEC, the FERC, and other private and public individuals.

                          PURPOSE AND SUMMARY

    The bill reported by the Committee has two purposes: the 
legislation would repeal PUHCA, streamlining regulation and 
eliminating unnecessary duplication, thus facilitating 
competition in the energy industry. PUHCA no longer serves its 
original purpose of restructuring the energy industry and 
protecting investors and consumers from holding company abuses. 
The nature of the utility industry has changed, the state and 
federal governments have implemented regulatory controls, and 
Congress has enacted federal energy laws and federal securities 
laws--all of which more than adequately protect consumers and 
utility rate payers. In light of these developments, PUHCA has 
become obsolete.
    The Committee recognizes that repealing PUHCA not only 
streamlines regulation, but also takes the necessary first step 
in creating true competition in the electricity industry. As 
Senator Johnston testified at the Committee's hearing on 
repealing PUHCA: ``the transition to competitive retail markets 
will be hindered and more costly unless PUHCA is repealed as a 
first step down the restructuring road * * * true and fair 
retail completion will be thwarted without PUHCA repeal.'' \1\ 
The Committee believes that the debate on comprehensive energy 
reform should be reserved for the Energy Committee, the FERC, 
and the states.
---------------------------------------------------------------------------
    \1\ Testimony of Senator J. Bennett Johnston, Hearing on the Public 
Utility Holding Company Act of 1995: Senate Committee on Banking, 
Housing and Urban Affairs, June 6, 1996 at 2.
    Senator Johnston also testified that without PUHCA repeal ``efforts 
by the States to implement retail competition, such as those in New 
York, California, Rhode Island, New Hampshire and others, will be 
frustrated.'' (Testimony of Senator J. Bennett Johnston, Id. at 4.)
---------------------------------------------------------------------------
    Perhaps most importantly, S. 1317 would provide for 
additional consumer protections. Most critical to consumer 
protection, the bill would enhance regulatory oversight of the 
ratemaking process. The Committee believes that the regulators 
must be able to ensure that consumers pay only for costs 
associated with utility services. S.1317 would augment the 
existing ratemaking authority of Federal and State energy 
regulators. This authority would allow regulators to review the 
records of utility transactions in order to protect ratepayers 
from unfair rate increases and any abusive practices.
    The bill would also allow the FERC and the states to more 
effectively protect ratepayers by addressing a problem created 
by the decision of the Court of Appeals for the District of 
Columbia Circuit Court in Ohio Power Company v. FERC \2\ 
(``Ohio Power''). The court in Ohio Power held that the FERC 
did not have authority to regulate certain costs in setting 
utility rates when those costs had previously been approved by 
the SEC and put into question the states' authority in this 
area. S. 1317 would remove the SEC from the ratemaking process 
and it would restore the FERC's (and implicitly the states') 
full ratemaking authority.
---------------------------------------------------------------------------
    \2\ Ohio Power Company v. FERC, 954 F.2d 779 (D.C. Cir. 1992).
---------------------------------------------------------------------------
    Finally, S. 1317 would ensure that regulators have the 
necessary authority to protect consumer rates by granting the 
FERC and the state public service commissions the authority to 
review a holding company's books and records, to the extent 
necessary to review rates. The legislation would give the FERC 
and state public service commissions access to books and 
records of all utility holding companies, their associates, 
affiliates, and subsidiaries, that are relevant to the 
determination of rates.\3\ The bill also contains an 
enforcement mechanism to ensure that the state commissions will 
be able to implement this newly expanded books and records 
review authority.
---------------------------------------------------------------------------
    \3\ These provisions augment the existing books and records 
authority of both the FERC (as contained in the Federal Power Act, 16 
U.S.C. 825) and the state commissions.
---------------------------------------------------------------------------

                           PURPOSE AND SCOPE

Background

            The ``unregulated'' energy industry
    In the early 1900's utility holding companies expanded 
rapidly--``fueled'' by growth in the electric and gas 
industries and financing from Wall Street.\4\ As a result of 
this rapid growth, industry power was concentrated among a 
handful of large interstate holding company systems.\5\ In the 
late 1920's, at Congress's request, the Federal Trade 
Commission (``FTC'') undertook an extensive study of the public 
utility industry. At the conclusion of this seven year study, 
the FTC published a 107 volume report. The FTC report was 
followed by a second, two-year Congressional study. Both these 
studies uncovered a myriad of utility industry abuses 
facilitated by the holding company structure, such as the 
issuance of securities based on unsound assets, mismanagement 
and exploitation of subsidiaries, interaffiliate dealing, and 
the use of the holding company structure to evade effective 
regulation.\6\
---------------------------------------------------------------------------
    \4\ SEC Study, Regulation of Public Utility Holding Companies, 
Division of Investment Management, June 1995 (``SEC Study'') at 1.
    \5\ Id. at 3.
    \6\ Id. at 3.
---------------------------------------------------------------------------
    The studies found that the utility holding companies' 
pyramidal corporate structure facilitated most of the industry 
abuses. Holding companies bought other holding companies--
creating up to 10 layers of ownership between the utility 
subsidiary and its holding company. Since it was difficult to 
determine the true assets and liabilities of the company, this 
structure greatly increased the speculative nature of the 
holding companies securities. The holding companies manipulated 
market rates for their securities and inflated their capital 
structure by forcing subsidiaries to buy supplies from 
affiliates at exorbitant above market prices. The holding 
company structure made it virtually impossible to trace these 
abusive interaffiliate transactions. As a result of the abuses, 
investors were defrauded, subsidiary companies were forced to 
pay excessive prices for services, and in the end, energy 
prices were grossly inflated.
    States were unable and ill-equipped to regulate these 
multistate holding companies effectively. At that time, many 
states did not have a utility-related regulatory structure in 
place and the Supreme Court considered state regulation of 
multistate holding companies a violation of the Commerce Clause 
of the Constitution.\7\
---------------------------------------------------------------------------
    \7\ Id. at 2.
---------------------------------------------------------------------------
            The new regulatory regime--The Public Utility Holding 
                    Company Act of 1935
    Congress enacted the Public Utility Holding Company Act 
(``PUHCA'') in 1935 to remedy these holding company abuses. 
First, PUHCA mandated the simplification of the utility holding 
company structure. The breakup of the mammoth holding company 
systems was achieved by imposing an ``integration 
requirement,'' which limited holding companies to owning only 
energy and energy-related companies in discrete geographic 
areas.
    Second, PUHCA gave the SEC authority to oversee these 
companies.\8\ Under this regulation, holding companies with 
multistate utility operations were required to register with 
the SEC and thus become subject to the full panoply of 
regulation imposed by PUHCA.\9\ Prior SEC approval was required 
for certain corporate transactions engaged in by registered 
holding companies such as: 
securities issued, utility assets acquired, and some merger 
activities; and restrictions against interaffiliate loans and 
diversification into non-utility businesses were imposed. PUHCA 
also subjected registered holding companies to extensive 
reporting and accounting requirements.
---------------------------------------------------------------------------
    \8\ Id. at 7.
    The Congress determined that the SEC should oversee holding 
companies and PUHCA since the agency had ``expertise in financial 
transactions and corporate finance.'' Id. at 7.
    \9\ Id. at 7-8.
    The companies are referred to as ``registered utility holding 
companies'' since they come within the purview of PUHCA. Currently 
there are 15 such registered utility companies. There are 12 registered 
electric holding companies: Allegheny Power System, American Electric 
Power Company, Central and South West Corporation, CINergy Corporation, 
Eastern Utilities Associates, Entergy Corporation, GPU Corporation, New 
England Electric System, Northeast Utilities, PECO Energy Power 
Company, The Southern Company, and Unitil Corporation. Also, there are 
three registered gas companies: Consolidated Natural Gas Company, 
National Fuel Gas Company, and Columbia Gas System.
    PUHCA allowed the SEC to conditionally exempt from all provisions 
of the Act, except those governing utility acquisitions, certain 
holding companies which are ``predominately intrastate in character and 
carry on their business substantially in a single state.'' 15 U.S.C. 
Sec. 79c(a)(1). These companies are referred to as ``exempt utility 
holding companies''. There are currently approximately 150 exempt 
utility holding companies.
---------------------------------------------------------------------------
            The studies begin a twenty year debate on PUHCA
    Congress has debated the issue of PUHCA reform for nearly 
twenty years. The industry, the regulators, the Congress, and 
consumer and environmental protection groups agree that the SEC 
has completed its task--assigned over sixty years ago--of 
simplifying the utility holding company structure and that many 
of the remaining PUHCA provisions duplicate other Federal or 
state laws or are unduly burdensome.
    In 1932--three years before PUHCA became law--thirteen 
large holding companies controlled 75% of the electric 
utilities while eleven companies held over 80% of the gas 
pipelines.\10\ Currently there are only 12 registered electric 
utility holding companies and 3 registered gas utility holding 
companies which together, at the end of 1993, owned only 19% of 
all investor-owned utility assets.\11\ The remaining exempt gas 
and electric utility holding companies own over half of all 
such utility assets.
---------------------------------------------------------------------------
    \10\ CRS Report 93-266 A. The Public utility Holding Company Act of 
1935: Legislative History, Background and Recent Amendments, at 2.
    \11\ SEC Study, supra note 4, at vii; see also, note 9, supra.
---------------------------------------------------------------------------
    In 1977, the General Accounting Office (the ``GAO'') issued 
a report on the SEC's enforcement of PUHCA.\12\ The GAO 
initiated the report in response to an inquiry from Congressman 
John Dingell, then Chairman of the Subcommittee on Energy and 
Power of the House Committee on Interstate and Foreign 
Commerce. The GAO reported that many of PUHCA's objectives had 
been met by the SEC's actions to reorganize and simplify the 
pyramidal corporate structures and that, as a result, financial 
conditions in the gas and electric utility industries had 
become more stable. Recognizing that Congress may need to 
reform PUHCA, the GAO included in its recommendations that the 
SEC undertake a complete study on PUHCA. \13\
---------------------------------------------------------------------------
    \12\ Report to the Congress ``The Force of The Public Utility 
Holding Company Act has Been Greatly Reduced by Changes in the 
Securities and Exchange Commission's Enforcement Policies,'' FGMSD-77-
35, June 20, 1977.
    \13\ Id. at 16-17.
---------------------------------------------------------------------------
    The SEC recommended to Congress in 1981 that Congress 
repeal PUHCA: ``on the basis that the reorganization of holding 
companies contemplated under [PUHCA] had been completed and 
that the remaining provisions were either duplicative of other 
regulatory schemes or no longer necessary to prevent the abuses 
that led to enactment of [PUHCA].'' \14\ Senator D'Amato, then 
Chairman of the Securities Subcommittee of the Banking 
Committee, and Senator Johnston, then Ranking Member of the 
Energy Regulation Subcommittee of the Energy Committee, acted 
on the SEC's recommendation by introducing three separate bills 
to reform PUHCA. These measures sparked Congressional debate on 
PUHCA reform.\15\ Senator D'Amato set the tenor of the debate 
in his statement introducing the legislation on the Senate 
floor. He said that PUHCA reform was necessary because: ``the 
Public Utility Holding Company Act is a major impediment to 
meaningful attempts to improve the economic well-being of the 
utility industry.'' \16\
---------------------------------------------------------------------------
    \14\ CRS Report, supra note 10, at 15.
    \15\ In 1981, three measures were introduced by Senators D'Amato 
and Johnston regarding PUHCA: S. 1869, a bill to amend the Public 
Utility Holding Company Act of 1935 to simplify its administration and 
to remove restrictions no longer necessary to the protection of 
investors and consumers; S. 1870, a bill to amend the Public Utility 
Holding Company Act of 1935 to improve financial performance in the 
electric and gas utility industries by removing unnecessary impediment 
to the exercise of sound and prudent business judgement by utility 
executives; and S. 1871 a bill to amend section 2 of the Public Utility 
Holding Company Act of 1935. (November 19, 1981, Congressional Record 
at 28357)
    \16\ Statement of Senator Alfonse D'Amato, November 19, 1981, 
Congressional Record at 28357.
---------------------------------------------------------------------------
    In 1983, the GAO responded to the SEC's recommendations and 
to Senator D'Amato and Johnston's legislation by issuing yet 
another report on PUHCA. In this report, the GAO agreed that a 
number of PUHCA's provisions duplicated other laws. The GAO 
also identified regulatory gaps that would occur if PUHCA were 
repealed. For example, the report cited ``approvals of 
acquisitions and financing of holding companies and the review 
of cost allocations between holding companies and their service 
companies and utility subsidiaries'' as areas in which PUHCA 
provided the only authority for regulation. The GAO also cited 
the concerns of state regulators regarding their ability to 
regulate utility holding companies.\17\ The Committee convened 
a hearing regarding PUHCA reform on June 14 and 15, 1983, but 
took no further action during that legislative session.
---------------------------------------------------------------------------
    \17\ Analysis of SEC's Recommendation to Repeal the Public Utility 
Holding Company Act, General Accounting Office, GAO/RCED-83-118, August 
30, 1983, at i-v.
---------------------------------------------------------------------------
    During the 20 year debate on PUHCA reform, Congress 
successfully enacted piecemeal amendments to the Act to respond 
to the changing dynamics of the energy industry. For example, 
in 1978, Congress adopted the ``Public Utility Regulatory 
Policies Act'' to exempt certain new energy generation 
facilities from PUHCA regulation. In 1992, Congress enacted the 
``Energy Policy Act'' to amend PUHCA and encourage competition 
in the wholesale energy market. In 1995, Congress enacted the 
``Telecommunications Act,'' which included a provision to 
encourage competition in the new telecommunications industry by 
allowing registered holding companies to establish exempt 
telecommunications subsidiaries. While Congress created limited 
opportunities for utility holding company diversification with 
these amendments to PUHCA, it has not yet had the opportunity 
to accomplish comprehensive reform of the Act itself.
            Recent SEC study triggers committee action
    In 1994, the SEC began a comprehensive study of PUHCA. The 
study considered the effectiveness of the SEC's administration 
of PUHCA and examined initiatives for modernizing PUHCA in 
light of changes in the energy industry. In June 1995, the 
SEC's Division of Investment Management published a 
comprehensive report on the findings of the study, including 
the history of PUHCA, subsequent administrative and legislative 
changes to PUHCA, and the energy industry in general.
    The SEC report concluded that PUHCA has accomplished its 
basic purpose of protecting investors, simplifying the utility 
industry and preventing industry abuses. The report further 
concluded that PUHCA, in many respects, either duplicated other 
state or federal regulation or was no longer necessary to 
prevent the recurrence of the abuses that led to the statute's 
enactment.\18\ Although the SEC had first made this same 
finding in 1981, in the 1995 report the SEC examined more 
closely the effect of PUHCA repeal on the FERC and states' 
ability to continue to protect consumers.
---------------------------------------------------------------------------
    \18\ SEC Study, supra note 4, at 128-133.
---------------------------------------------------------------------------
    The SEC report recommended that Congress repeal PUHCA 
(subject to certain conditions) since ``the current regulatory 
system imposes significant costs, in direct administrative 
charges and foregone economies of scale and scope, that often 
cannot be justified in terms of benefits to utility 
investors.'' \19\ The SEC recommended that Congress retain 
certain PUHCA provisions, noting that otherwise consumers could 
be exposed to some of the same abuses that PUHCA was enacted to 
prevent. As SEC Chairman Arthur Levitt cautioned: ``as long as 
electric and gas utilities continue to function as monopolies, 
the need to protect against the cross-subsidization of non-
utility operations will continue to exist * * * the best means 
of guarding against cross-subsidization is likely to be 
thorough audits of books and records and federal oversight of 
affiliate transactions.'' \20\
---------------------------------------------------------------------------
    \19\ SEC Study, supra note 4, at x.
    \20\ Statement of Arthur Levitt, Chairman, the Securities and 
Exchange Commission, Hearing regarding the Regulation of Public Utility 
Holding Companies: Subcommittee on Telecommunications and Finance and 
Subcommittee on Energy and Power, Committee on Commerce, House of 
Representatives, August 4, 1995 at 6.
---------------------------------------------------------------------------

The legislation reforming PUHCA

            The 1935 act has become ineffective and burdensome
    Although the SEC recommended that Congress enact certain 
safeguards to protect consumers, it also outlined many of the 
ways PUHCA's burdensome regulation unnecessarily restricts the 
growth of the registered holding companies, the hundreds of 
exempt companies, and free-standing utility companies. As the 
SEC report illustrates, developments in other areas of the law 
have rendered PUHCA obsolete. For example, PUHCA requires that 
holding companies make frequent disclosures and statements to 
the SEC. While these safeguards may have been necessary in 
1935, the SEC can effectively protect investors through 
disclosures required under the Securities Act of 1933 and the 
Securities Exchange Act of 1934. PUHCA requires that the SEC 
review many acquisitions and mergers of utility and holding 
companies. The FERC also has jurisdiction to review and approve 
these transactions and in practice, the SEC generally defers to 
the FERC's decisions on competition issues.\21\ PUHCA restricts 
holding companies from owning utility subsidiaries that are not 
in the same geographic area. The Committee heard testimony that 
the integration requirement is now outdated and a barrier to 
the production of efficient energy.\22\ Anticompetitive 
concerns may be dealt with under the Federal antitrust laws and 
the FERC's assessment of market power concerns during its 
merger and acquisition review.\23\
---------------------------------------------------------------------------
    \21\ Most State commissions also have the authority to prevent 
mergers that are not in the ``public interest.'' Thirty-three of forty-
three State commissions responding to an SEC survey indicated that they 
have jurisdiction over utility mergers. Thirty responded that they 
regulate the acquisition of utility assets. (Written response to 
questions, Barry P. Barbash, Director, Division of Investment 
Management, Securities and exchange Commission, Hearing on the Public 
Utility Holding Company Act of 1995: Senate Committee on Banking, 
Housing and Urban Affairs, June 6, 1996 at 2.)
    The review of mergers and acquisitions by the FERC and the states 
make PUHCA's merger and acquisition review provisions unnecessary. In 
addition, the diversification provisions of PUHCA are also unduly 
burdensome on both registered holding companies, exempt holding 
companies and the energy industry in general. As the SEC report 
concludes: ``the [non-utility] diversification restriction limits the 
ability of other companies to enter the utility business. There may be 
many companies involved in manufacturing, energy, finance, 
telecommunications or other businesses that would be interested in 
diversifying into the utility industry. There may be substantial 
economies to be achieved by allowing these companies to acquire and 
operate utilities.'' (SEC Study, supra note 4, at 132-133.)
    \22\ In 1935, Congress believed that this ``integration 
requirement'' would improve regulation. For example, PUHCA prevents 
exempt holding companies from expanding and investing--exempt holding 
companies cannot diversify or acquire utilities interstate without 
falling under PUHCA's restrictive registration provisions. Senator 
Johnston testified before the Committee about the burden that the 
geographic limitations impose: ``PUHCA's out-dated geographic 
restrictions don't just apply to a few large companies here and there. 
These geographic restrictions directly circumscribe the investment 
options of 75-80 percent of the investor-owned utility industry.'' 
(Testimony of Senator J. Bennett Johnston, supra note 1, at 2.)
    \23\ The SEC report commented that ``the SEC's review of the 
potential anti-competitive effects of utility acquisitions parallels 
review by the Department of Justice and Federal Trade Commission under 
the federal antitrust laws'' (protections are contained in the Hart-
Scott-Rodino, Sherman, and Clayton Acts). (SEC Study, supra note 4, at 
130.)
    FERC Chair Elizabeth Moler testified that the FERC considers the 
effect of the mergers or acquisitions on rates and competition. 
``Market power, which falls under effect on competition, is one of the 
most important factors in analyzing mergers, acquisitions and 
disposition of facilities.'' (Written response to questions, Elizabeth 
Moler, Chair, Federal Energy Regulatory Commission, Hearing on the 
Public Utility Holding Company Act of 1995: Senate Committee on 
Banking, Housing and Urban Affairs, June 6, 1996 at 2.)
---------------------------------------------------------------------------
    The Committee considered the SEC report and agreed with its 
conclusion that: ``[g]iven the developments in the industry and 
in other regulatory regimes, a less structural, more targeted 
regulatory approach now seems appropriate.'' \24\ In crafting 
the Public Utility Holding Company Act of 1995, the Committee 
followed the SEC's recommendations to conditionally repeal 
PUHCA subject to certain conditions. Mindful that consumers 
need protection from unfair rates, the Committee strengthened 
the ability of Federal and state regulators to protect 
consumers from unfair rate increases. S. 1317 would address any 
regulatory gaps opened up by PUHCA repeal so that regulators 
would have ample authority to protect consumers.
---------------------------------------------------------------------------
    \24\ SEC Study, supra note 4, at 133.
---------------------------------------------------------------------------
    The SEC testified before the Committee, ``Senate Bill S. 
1317 largely implements the [legislative] option recommended by 
the SEC, by providing the FERC and the state regulators with 
broad authority to inspect books and records of companies in 
holding company systems.'' \25\ NARUC testified that this 
legislation is ``an approach most consistent with the NARUC's 
policy position adopted in March 1995.'' \26\
---------------------------------------------------------------------------
    \25\ Testimony of Barry Barbash, Director, Division of Investment 
Management, Securities and Exchange Commission, Hearing on the Public 
Utility Holding Company Act of 1995: Senate Committee on Banking, 
Housing and Urban Affairs, June 6, 1996.
    \26\ Testimony of Robert Gee on behalf of NARUC, Hearing on the 
Public Utility Holding Company Act of 1995: Senate Committee on 
Banking, Housing and Urban Affairs, June 6, 1996 at 2.
---------------------------------------------------------------------------
            Protecting consumers from paying unfair rates
    During the Committee's consideration of PUHCA repeal, the 
regulators, consumers, and industry groups identified as their 
primary concern that repeal could provide utility companies 
with the opportunity to finance diversification by increasing 
energy rates to utility customers. According to these groups, 
the parent holding company could fund the operation of its non-
utility subsidiaries and its diversification through affiliate 
transactions. The parent company would then be able to 
subsidize such non-utility transactions and consumers would end 
up paying for the transaction through higher rates.\27\
---------------------------------------------------------------------------
    \27\ ELCON testified to the Committee that ``[t]he concern here is 
that the potential for self dealing, unfair cost allocation, and cross 
subsidization between regulated and unregulated affiliates to the 
detriment of the captive ratepayers of the regulated affiliate * * *. 
No captive ratepayers of a regulated entity--whether they be 
residential, small business, or large industrial consumers--should ever 
be forced to subsidize the unregulated, diversified investments of the 
regulated entity's parent company or any unregulated affiliate. 
(Testimony of John Hughes on behalf of ELCON, Hearing on the Public 
Utility Holding Company Act of 1995: Senate Committee on Banking, 
Housing and Urban Affairs, June 6, 1996, at 7.)
    NASUCA testified to the Committee that ``[n]o cost associated with 
an off-system investment, or with regulating such an investment to 
protect captive customers, should be borne by ratepayers. (Testimony of 
Larry Frimerman on behalf of NASUCA, Hearing on the Public Utility 
Holding Company Act of 1995; Senate Committee on Banking, Housing and 
Urban Affairs, June 6, 1996 at 7.)
---------------------------------------------------------------------------
    Representatives from ELCON and NASUCA testified to the 
Committee that repeal of PUHCA before deregulation of the 
entire utility industry could lead to consumers paying for non-
utility diversification. John Hughes for ELCON testified that 
preapproval or arms-length dealing was the best way to prevent 
unfair affiliate transactions.\28\
---------------------------------------------------------------------------
    \28\ ELCON testified that ``[a]ll transactions between unregulated 
and regulated affiliate must be at arm's length and subject to 
regulatory oversight.'' Testimony of John Hughes, Id. at 7.
---------------------------------------------------------------------------
    Larry Frimerman, testifying for NASUCA, elaborated that: 
``[i]f PUHCA were repealed or substantially modified, neither 
the remaining regulatory framework nor the current state of 
competition would be sufficient to protect consumers. Effective 
regulation must retain both rate and structural reviews, with a 
rational allocation of responsibility between state and federal 
regulators. [T]here are substantial gaps and variations in 
existing state regulation of multi-state holding companies. 
These gaps would need to be filled, and current regulatory 
problems created by the Ohio Power and Mississippi Power & 
Light Court decisions would need to be corrected prior to 
Congressional consideration of removal of any PUHCA 
protections.'' \29\
---------------------------------------------------------------------------
    \29\ Testimony of Larry Frimerman, supra note 27.
---------------------------------------------------------------------------
    The Committee considered how to best ensure that the FERC 
and state regulators would be able to prevent the funding of 
non-utility investments through utility rates and other unfair 
affiliate transactions. The Committee followed the regulators' 
recommendations to prevent unfair rates. To enable the FERC and 
the States to best protect consumers, the legislation would 
improve the regulators' ability to determine whether a public 
utility company may recover in rates costs associated with 
affiliate transactions. According to the FERC's testimony 
before the Committee, S. 1317 would give the FERC authority to 
protect registered system ratepayers against these abusive 
affiliate contracts.\30\ NARUC testified that S. 1317 would 
``greatly assist State commissions' efforts to protect 
customers of multi-state electric utility holding companies 
from potential abuses. By ensuring the State's ability to 
access multi-state holding company books and records, audit 
multi-state holding companies and regulate affiliate 
transactions within a holding company system, States will be 
able to effectively meet the challenge of protecting customers 
from abusive practices.'' \31\
---------------------------------------------------------------------------
    \30\ Testimony of Elizabeth Moler, Chair, Federal Energy Regulatory 
Commission, Hearing on the Public Utility Holding Company Act of 1995: 
Senate Committee on Banking, Housing and Urban Affairs, June 6, 1996 at 
8-9.
    Chair Moler also testified that ``the new Act would recognize the 
affiliate abuse protections under otherwise applicable law. These 
changes, in conjunction with greater access to books and records, would 
give the FERC broader authority than it now has to protect public 
utility ratepayers against affiliate abuses. The changes would permit 
the FERC to protect ratepayers against affiliate abuses. The changes 
would permit the FERC to protect ratepayers in all types of electric 
and gas holding company systems and provide addition access to books 
and records to monitor affiliate abuse. (Testimony of Elizabeth Moler, 
Id. at 17.)
    \31\ Testimony of Robert Gee, supra note 26, at 6.
---------------------------------------------------------------------------
    To further guard against potential affiliate abuse, the SEC 
suggested in its testimony to the Committee that legislation 
include authority for the FERC to preapprove affiliate 
transactions to ensure that public utilities do not subsidize 
non-utility companies. The Committee, however, intends this 
legislation to allow diversification and promote competition 
with only necessary barriers to entry. The Committee believes 
that preapproval of affiliate transactions would not be 
necessary and would only be burdensome to both the holding 
companies and to the FERC. FERC Chair, Elizabeth Moler, assured 
the Committee that: ``cross-subsidization can most effectively 
be addressed as a rate issue. The [Federal Energy Regulatory] 
Commission does not need new regulatory powers to protect 
consumers from cross-subsidization of non-utility business if 
PUHCA is repealed and S. 1317 is enacted.'' \32\
---------------------------------------------------------------------------
    \32\ Responses to written questions, Elizabeth Moler, supra note 
23, at 3.
---------------------------------------------------------------------------
    The Committee accepted the FERC's assurance that it could 
protect consumers through the ratemaking process. Consequently, 
the Committee did not include a provision requiring preapproval 
of affiliate transactions. In the final analysis, the SEC 
concurred with the Committee, stating in a letter to Chairman 
D'Amato: ``Insofar as the FERC will succeed to the SEC's 
regulatory authority over utility holding company systems, the 
final decision whether broader authority is desirable should be 
made in consultation with [the FERC].'' \33\
---------------------------------------------------------------------------
    \33\ June 25, 1996 letter from SEC Chairman Arthur Levitt to 
Chairman D'Amato.
---------------------------------------------------------------------------
            Closing the Ohio Power gap
    In order to ensure that the FERC and states have 
unqualified authority to disallow costs associated with certain 
affiliate transactions, S. 1317 would solve the regulatory 
conundrum caused by a 1992 Court of Appeals decision, in Ohio 
Power Company v. FERC, 954 F.2d 779 (D.C. Cir. 1992). In Ohio 
Power, the court held that the SEC's approval of costs 
associated with an affiliate transaction under PUHCA preempted 
the FERC's determination of whether costs related to that 
transaction should be included in rates. As a result of Ohio 
Power, the FERC must currently allow costs approved by the SEC 
to be passed on to consumers through increases in utility rates 
even if those costs exceed market value.
    The Committee also heard testimony from the state 
regulators that Ohio Power could be interpreted in the future 
to preempt the states' ability to disallow unfair costs being 
passed on to consumers. Chairman Robert Gee of NARUC testified 
at the Committee's hearing about possible future effects of 
Ohio Power on state authority:

          [The Ohio Power] decision clearly threatens State 
        regulation concerning the costs of interaffiliate 
        transactions sought by the utility to be recovered in 
        retail rates. Accordingly, the NARUC strongly believes 
        that the costs of all non-power transactions between 
        holding company affiliates be subject to review by the 
        appropriate State and Federal ratemaking authority * * 
        * Legislation should therefore clarify States' 
        unrestricted authority over affiliate transactions.\34\
---------------------------------------------------------------------------
    \34\ Testimony of Robert Gee, supra note 26, at 3-4.

    S. 1317 would address the Ohio Power problem by increasing 
the energy regulators' ability to protect consumers. S. 1317 
would eliminate the Ohio Power regulatory gap by eliminating 
PUHCA and the conflicting jurisdiction over ratemaking between 
the SEC and the FERC. The legislation would explicitly grant 
authority to state and federal regulators so that the regulator 
overseeing the ratemaking function has the final say as to 
whether costs associated with an affiliate transaction may or 
may not be fairly passed on to consumers.
            Expanding the regulators' access to company books and 
                    records
    The Committee heard testimony from the regulators that the 
most important tool for regulators to keep companies from 
passing on non-utility costs to ratepayers is sufficient access 
to company books and records.
    The SEC recommended that if PUHCA were repealed ``Congress 
[must] ensure state access to books and records, and provide 
for federal audit authority and oversight of affiliate 
transactions.'' \35\ FERC Chair Elizabeth Moler testified about 
the regulators' need for additional books and records 
authority: ``The best way to protect consumers from subsidizing 
non-utility related activities is to * * * ensure that Federal 
and State rate regulators have sufficient authority, when 
necessary to protect ratepayers, to inspect the books and 
records of jurisdictional utilities and gas companies, any 
holding company of which that utility or gas company is a 
member, and any associate company within the holding company 
system.'' \36\
---------------------------------------------------------------------------
    \35\ SEC Study, supra note 4, at 133-134.
    \36\ Written responses to questions, Elizabeth Moler, supra note 
23, at 1.
    FERC currently has authority to access books and records of utility 
companies. S. 1317 would clarify this existing authority to ensure that 
it has full access to all companies in a holding company system.
---------------------------------------------------------------------------
    To address the regulators' concerns about books and 
records, the Committee included in S. 1317 provisions to 
strengthen the regulators' authority to obtain records of all 
the companies in a holding company system.\37\ Section 5 of S. 
1317 permits the FERC to examine all books and records of a 
holding company and each of its subsidiaries and affiliates 
relevant to costs incurred by a utility company and as 
``necessary or appropriate for the protection of utility 
customers.''
---------------------------------------------------------------------------
    \37\ The legislation would give the FERC additional authority to 
access books and records of all companies in a holding company system. 
The FERC raised a concern at the Committee's hearing that S. 1317 not 
be construed to limit existing FERC authority in any way. The Committee 
clarifies in section 9 of the legislation that access would supplement 
the FERC's existing ratemaking authority under section 301 of the 
Federal Power Act and section 8 of the National Gas Act.
---------------------------------------------------------------------------
    The Committee believes that State regulators must also have 
access to records of all companies in a holding company system 
in order to set rates, allocate costs, and guard against 
potentially abusive affiliate transactions.
    According to the SEC study, many States are unable to 
readily obtain the books and records of an out-of-state 
company.\38\ The groups representing manufacturers and 
consumers who testified before the Committee raised concerns 
about the State commissions' inability to regulate the out of 
State utility operations of multistate companies. The Committee 
addressed these concerns in the legislation. Section 6 of S. 
1317 would grant to State commissions access to all the books 
and records of every company in a holding company system, no 
matter where that company is located, to the extent that the 
State commissions need such access to set consumer retail rates 
of a public utility in its jurisdiction. S. 1317 also allows 
any Federal district court in a state to enforce that State 
commissions access to company books and records.
---------------------------------------------------------------------------
    \38\ SEC Study, supra note 4, at 134.
---------------------------------------------------------------------------
    The Chairman of the State regulatory commission group, 
NARUC, Robert Gee, testified to the Committee that the books 
and records provision of S. 1317: ``would greatly assist State 
commissions' effort to protect customers of multistate electric 
utility holding companies from potential abuses. By ensuring 
the States' ability to access multistate holding company books 
and records, audit multistate holding companies and regulate 
affiliate transactions within a holding company system, States 
will be able to effectively meet the challenge of protecting 
customers from abusive practices.'' \39\
---------------------------------------------------------------------------
    \39\ Testimony of Robert Gee, supra note 26, at 6.
---------------------------------------------------------------------------
    NARUC also indicated to the Committee that it was concerned 
that S. 1317's effective date of 1 year from the enactment of 
the statute would not provide sufficient time for States' to 
implement the books and records provision. ``This deadline may 
not be sufficient to allow State commissions to obtain 
necessary authorities from their respective legislatures to 
`fill gaps' created by the Act's repeal.'' \40\ As a result of 
these concerns, and to assure the continued protection of 
ratepayers, the Committee lengthened the effective date to 18 
months after enactment. The Committee believes this additional 
time will afford each state legislature and commission time to 
implement the books and records provision.\41\
---------------------------------------------------------------------------
    \40\ June 13, 1996 letter from NARUC to Chairman D'Amato.
    \41\ A June 20, 1996 memo to the Committee staff from NARUC staff 
indicates that all but one of the State legislatures will meet next 
year.
---------------------------------------------------------------------------
            A level playing field for all
    Among other things, the Committee intends for this 
legislation to put all utility companies on a level playing 
field. This left the Committee to deal with the question of how 
to treat the formerly exempt holding companies. FERC Chair 
Moler suggested in her testimony to the Committee that 
legislation to repeal PUHCA include only narrow exemption 
provisions--which would grandfather previously approved 
activities and transactions but not exempt holding companies 
from affiliate abuse oversight.\42\ The NARUC testified to the 
Committee that the exemption provision should ``ensure that all 
utility holding companies are subject to comparable regulatory 
treatment regardless of corporate form.'' In particular, NARUC 
asserted that access to books and records should ``apply to all 
holding companies, whether currently regulated or exempt.'' 
\43\
---------------------------------------------------------------------------
    \42\ Testimony of Elizabeth Moler, supra note 30, at 3.
    \43\ June 13, 1996 letter from NARUC to Chairman D'Amato (emphasis 
added).
---------------------------------------------------------------------------
    The Committee agrees with the regulators that all holding 
companies should be subject to similar regulation. As a result, 
S. 1317 would allow a company to continue to engage in all 
activities and transactions in which it may currently engage. 
Further, all transactions and companies in the holding company 
system--whether currently registered or exempt--would be 
subject to the newly expanded Federal books and records 
provisions, unless the FERC finds that a transaction is not 
relevant to its ratemaking jurisdiction.
    Companies that are holding companies only because they own 
any of three specialized energy companies (Exempt Wholesale 
Generators (``EWGs''), Foreign Utility Holding Companies 
(``FUCOs''), and/or Qualified Facilities (``QFs'')) are 
exempted from the books and records provision of S. 1317. The 
Committee recognized that these companies have no traditional 
utility affiliate companies so there is no possibility of 
affiliate abuse and no need for FERC access to affiliate books 
and records. However, if any of these companies acquires a 
traditional utility affiliate, it would lose its exemption.

 SECTION-BY-SECTION ANALYSIS OF S. 1317: ``THE PUBLIC UTILITY COMPANY 
                             ACT OF 1996''

Section 1. Short title

    Section 1 provides that S. 1317 may be cited as the 
``Public Utility Holding Company Act of 1996.''

Section 2. Findings and purposes

    Section 2 sets out the findings and purposes of the Act. 
The ``findings'' of the Act state that the constraints placed 
on holding company systems by the Public Utility Holding 
Company Act of 1935 are no longer relevant but that there is 
continuing need for limited Federal and State regulations to 
protect the ratepayers of electric utilities and natural gas 
companies. The ``purpose'' of the Act is to eliminate 
unnecessary regulation through repeal of the Public Utility 
Holding Company Act of 1935, while facilitating effective State 
and Federal rate regulation, by assuring access to holding 
company system books and records that are relevant to setting 
utility rates.

Section 3. Definitions

    Section 3 defines the terms used in the Act. The 
definitions of ``affiliate,'' ``associate company,'' 
``company,'' ``electric utility company,'' ``gas utility 
company,'' ``holding company,'' ``public utility company,'' 
``state commission,'' ``subsidiary company'' and ``voting 
security'' are taken from the definitions in section 2 of the 
Public Utility Holding Company Act of 1935, 15 U.S.C. 
Sec. 79b(a). The Act preserves the ``10 per cent or more'' 
threshold used by the 1935 Act to define a ``holding company'' 
and a ``subsidiary company''. As in the 1935 Act, the 
alternative definition for these two terms (the ``controlling 
influence'' test) is also used.
    The terms ``exempt wholesale generator'' and ``foreign 
utility company'' have the same meaning as in sections 32 and 
33, respectively, of the 1935 Act as those sections existed on 
the day before the effective date of this Act. These terms were 
added to the 1935 Act by title VII of the Energy Policy Act of 
1992.
    The terms ``jurisdictional rates'', ``natural gas company'' 
and ``public utility'' are taken from the Natural Gas Act and 
the Federal Power Act. Specifically, the term ``natural gas 
company'' tracks the language of section 2(6) of the Natural 
Gas Act, 15 U.S.C. Sec. 717a(6). The term ``public utility'' 
tracks that of Section 201(e) of the Federal Power Act, 16 
U.S.C. Sec. 824(e). The term ``jurisdictional rates'' is 
intended to encompass the full ratemaking jurisdiction of the 
Federal Energy Regulatory Commission's authority to set rates 
under the Federal Power and Natural Gas Acts.

Section 4. Repeal of the Public Utility Holding Company Act of 1935

    Section 4 repeals the 1935 Act, effective 18 months after 
the date of enactment of this Act.

Section 5. Federal access to books and records

    Section 5 provides the Federal Energy Regulatory Commission 
authority to inspect such books and records of holding 
companies, associate companies, subsidiary companies and 
affiliate companies as the Commission deems relevant to its 
ratemaking responsibilities under the Federal Power and Natural 
Gas Acts. To this end, companies are required to maintain and 
make available to the Commission such books, accounts, 
memoranda and other records as the Commission deems relevant to 
rate setting. The Commission's authority under this section 
supplements its authority over books and records under the 
Federal Power and Natural Gas Acts.
    This section imposes a confidentiality requirement taken 
from the confidentiality requirement in section 301(a) of the 
Federal Power Act. Consistent with current practice under the 
FPA, except as may be directed by the Commission or the courts, 
no member, officer, or employee of the Commission may divulge 
facts or information obtained during the course of examinations 
authorized under this section.

Section 6. State access to books and records

    Section 6 provides State regulatory commissions authority 
to inspect books, accounts, memoranda, and other records of a 
holding company or associate or affiliate companies as may be 
necessary to effectively set rates and carry out State 
regulation of public utility companies in a holding company 
system. The authority is to be exercised by written request and 
subject to such terms and conditions as are necessary and 
appropriate to safeguard against unwarranted disclosure to the 
public of any trade secrets or sensitive commercial 
information.
    The rights of the States under this section are enforceable 
in Federal district court.
    The authority granted by section 6 is intended to 
supplement existing State authorities. To ensure this result, 
section 6 provides that it does not preempt applicable State 
law concerning access to business information or in any way 
limit the rights of a State to obtain books, records, or other 
information under Federal law, contract, or otherwise. Some of 
these rights are set out in section 201(g) of the Federal Power 
Act, 16 U.S.C. Sec. 824(g).

Section 7. Exemption authority

    Section 7 provides the Commission authority to exempt 
certain entities from the requirements of section 5, with 
respect to access to books and records and requires the 
exemption of certain entities from those requirements.
    Section (7)(a) requires the Commission, not later than 90 
days after enactment, to issue a final rule exempting from the 
requirements of section 5 any person that is a holding company 
solely by reason of owning one or more (a) qualifying 
facilities (QFs); (b) exempt wholesale generators (EWGs); (c) 
foreign utility companies; or (d) any combination thereof. The 
purpose of this provision is to ensure that businesses whose 
activities are solely limited to ownership of these categories 
of generation investment will not be subject to the 
requirements of section 5. In addition, the Commission may by 
rule or order exempt any person or class of transactions from 
the requirements of section 5 if it finds that the books, 
records, accounts, memoranda or other records or class of 
transactions are not relevant to the exercise of its 
jurisdiction to set rates.

Section 8. Affiliate transactions

    Section 8 makes explicit that nothing in the Act precludes 
the Commission or a State Commission from determining under 
otherwise applicable law whether a public utility company may 
recover in rates any costs of an activity performed by an 
associate company, or any costs of goods or services acquired 
by the public utility company from an associate company.

Section 9. Applicability

    Section 9 makes clear that the Act does not apply to the 
United States, a State or any political subdivision of a State, 
any foreign governmental authority not operating in the United 
States, or any agency, authority, instrumentality, officer, 
agent or employee of these entities.

Section 10. Effect on other regulations

    Section 10 provides that nothing in this Act precludes the 
Commission or a State Commission from exercising its 
jurisdiction under otherwise applicable law to protect gas and 
electric utility consumers from paying too much for goods and 
services provided by associate companies and that from cross 
subsidies of associate companies by regulated public utility 
companies.

Section 11. Enforcement

    Section 11 refers to authorities contained in the Federal 
Power Act to provide the Commission full authority to enforce 
the provisions of the Act. These authorities include the 
authority: (I) to receive and proceed on complaints; (ii) to 
investigate any facts, conditions, practices or matters 
necessary to determine whether there has been a violation of 
the Act or any rule, regulation or order issued under the Act; 
and (iii) to hold hearings. Section 11 also gives the 
Commission authority to implement rules of practice and 
procedure and to perform any and all acts necessary to carry 
out the provisions of the Act.

Section 12. Savings provisions

    Section 12 provides that, in general, nothing in the Act 
prohibits a person from engaging in activities or transactions 
in which it is legally engaged or authorized to engage on the 
date of enactment if that person continues to comply with the 
terms of any such authorization. This savings provision ensures 
that prior authorizations made by the Securities and Exchange 
Commission and the Federal Energy Regulatory Commission 
continue in force under this Act.
    This section also provides that nothing in the Act limits 
the authority of the Commission under the Federal Power Act 
(including section 301 of that Act) or the Natural Gas Act 
(including section 8 of that Act).

Section 13. Implementation

    Section 13 requires the Commission to promulgate such 
regulations as may be necessary or appropriate to implement the 
provisions of this Act. These regulations are to be promulgated 
not later than 18 months after the date of enactment.
    Section 13 also requires the Commission to submit a report 
to Congress detailing technical and conforming amendments to 
Federal law necessary to implement the provisions of this Act. 
This report is required eighteen months after the date of 
enactment.

Section 14. Transfer of resources

    Section 14 provides for the transfer of relevant books and 
records from the Securities and Exchange Commission to the 
Federal Energy Regulatory Commission.

Section 15. Effective date

    Section 15 provides that the Act shall take effect 18 
months after date of enactment.

Section 16. Authorization of appropriations

    Section 16 authorizes to be appropriated funds necessary to 
carry out the Act.

Section 17. Conforming amendment to the Federal Power Act

    Section 17 repeals section 318 of the Federal Power Act, 16 
U.S.C. 825q. This section recognizes that repealing the 1935 
Act will eliminate any concerns about the possibility of 
conflicting decisions of the Securities and Exchange Commission 
and the Federal Energy Regulatory Commission.

                      REGULATORY IMPACT STATEMENT

    The bill significantly reduces regulatory burden on certain 
utility holding companies and associated costs to utility 
consumers. The bill also reduces the SEC's regulatory burden by 
eliminating the SEC's regulatory role with respect to utility 
holding companies registered under the Public Utility Act of 
1935.
    As stated in Section 2 of the Act, the purpose of the 
Public Utility Holding Company Act of 1996 is to eliminate 
unnecessary regulation through repeal of the Public Utility 
Company Act of 1935 while facilitating effective state and 
Federal regulation.
    Section 5 of the bill expands the FERC's authority to 
inspect books and records of holding companies, associate 
companies and affiliate companies as the FERC deems relevant to 
its ratemaking responsibilities under the Act. The Committee 
expects that this provision will facilitate the FERC's ability 
to effectively execute its supervisory responsibilities
    Section 7 of the bill requires the FERC to promulgate rules 
exempting certain entities from Section 5 of the Act providing 
federal access to books and records. The Committee intends for 
this rulemaking to enhance the FERC's ability to regulate under 
the new Act.

                        CHANGES IN EXISTING LAW

    In the opinion of the Committee, it is necessary to 
dispense with the requirements of paragraph or subsection 12 of 
rule XXVI of the Standing Rules of the Senate in order to 
expedite the business of the Senate.

                          cost of legislation

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, July 3, 1996.
Hon. Alfonse M. D'Amato,
Chairman, Committee on Banking, Housing, and Urban Affairs, U.S. 
        Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed S. 1317, the Public Utility Holding Company Act of 
1996, as ordered reported by the Senate Committee on Banking, 
Housing, and Urban Affairs on June 26, 1996. The bill would 
repeal the Public Utility Holding Company Act, and assign 
certain new responsibilities to the Federal Energy Regulatory 
Commission (FERC). CBO estimates that enactment of S. 1317 
would reduce the need for appropriated funds for the Securities 
and Exchange Commission (SEC) by about $1 million in fiscal 
year 1998 and by about $2 million a year thereafter. Any 
additional costs imposed on the FERC would be offset by user 
fees the agency is mandated to charge to industries it 
regulates. The bill would not affect direct spending or 
receipts, so pay-as-you-go procedures would not apply.
    Federal Budgetary Impact. Section 4 of S. 1317 would repeal 
the Public Utility Holding Company Act effective 18 months 
following enactment. Based on information from the SEC, we 
estimate this would reduce the agency's costs by about $1 
million in fiscal year 1998 (once the repeal is effective), and 
by about $2 million a year thereafter. In total, we estimate 
discretionary savings of about $9 million over the 1998-2002 
period, assuming that SEC appropriations are reduced consistent 
with the bill.
    Section 5 would authorize the FERC to have access to any 
records of public utilities and natural gas companies that are 
necessary for the commission to protect utility customers with 
respect to interstate transactions involving electricity and 
natural gas. Based on information from FERC, CBO estimates this 
activity would cost the agency about $2 million annually 
starting in 1998. If this amount is provided to the FERC in 
annual appropriations acts, it would be offset by fees that the 
agency is required to charge the industries it regulates. 
Therefore, the new responsibilities that the bill would create 
for the FERC would have no net budgetary impact.
    Mandates Statement. S. 1317 contains no intergovernmental 
mandates as defined in Public Law 104-4. However, states could 
choose to issue new regulations or pass new legislation in 
order to fill any gaps created by the repeal of the Public 
Utility Holding Company Act of 1935. Based on information from 
the National Association of Regulatory Utility Commissioners, 
CBO expects that the costs associated with any new state 
regulations or legislation would be minimal.
    S. 1317 would impose no new private-sector mandates as 
defined in Public Law 104-4. The bill would transfer regulatory 
authority for business-related transactions of public utility 
holding companies from the Securities and Exchange Commission 
to the Federal Energy Regulatory Commission and state 
regulators. Moreover, the bill would terminate current 
requirements to report extensive financial data to the SEC and 
would require only that federal and state regulators have 
access to books, accounts, and other records of all companies 
in the public utility holding company system. S. 1317 would 
also exempt certain independent power producers, wholesale 
generators, and foreign utilities from having to make these 
data available to regulatory authorities.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts for Federal 
costs are Kim Cawley and Rachel Forward, the CBO staff contact 
for State and local impacts is John Patterson, and the contacts 
for private-sector impacts are Richard Farmer and Patrice 
Gordon.
            Sincerely,
                                          Paul Van de Water
                                   (For June E. O'Neill, Director).