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Energy Policy Act Repeals Public Utility Holding Company Act

President Bush signed legislation to repeal the Public Utility Holding Company Act of 1935. The repeal was part of the Energy Policy Act of 2005, H.R.6. PUHCA repeal by itself has not been controversial. Similar measures have been approved by both the House and the Senate several times in recent years but had never been enacted into law. The SEC, which regulates public utility holding companies, favors repeal. The repeal of PUHCA is effective six months after enactment.

The act transfers authority over public utility holding companies from the SEC to the Federal Energy Regulatory Commission and various state agencies, a change that has long had the support of both FERC and the SEC. The measure would preserve FERC's current authority to require energy rates to be reasonable and not to pass-through costs unrelated to energy.

The PUHCA repeal measure embodies a growing sentiment that the regulatory restraints imposed by the Holding Company Act on the electric and gas industries are counterproductive and based on historical assumptions and industry models that are no longer valid. In order to ensure that ratepayers are protected, the act provides FERC and the states access to the books and records of holding company systems that are relevant to the costs incurred by public utility companies.

PUHCA was passed in 1935 when the utility industry was highly concentrated, with 13 holding companies controlling 75 percent of electric utilities, and with a multitude of confusing layers from holding companies that purchased other holding companies. Today, there are few holding companies and the market is much less concentrated, leading many to believe that PUHCA is an outdated measure.

Repealing PUHCA streamlines regulation and eliminates 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.

Section 1274 of the Energy Policy Act authorizes FERC to inspect the books and records of public utility holding companies, associate companies, subsidiary companies and affiliate companies as the Commission deems relevant to its ratemaking responsibilities. Companies are required to maintain and make available to FERC such books and records as the Commission deems relevant to costs incurred by a public utility or natural gas company.

Section 1275 authorizes state regulatory commissions to inspect the books and records of a public utility holding company or associate or affiliate companies as may be relevant to costs incurred by an electric utility company or a natural gas company and necessary to carry out state regulation of public utility companies in a holding company system. The rights of the states under this section are enforceable in federal district court. The authority granted by Section 1275 is intended to supplement existing state authority over holding company systems, not to expand or limit any existing authority a state commission has to regulate a public utility. To ensure this result, the statute 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.

Section 1281 is a savings provision which provides that 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. This savings provision ensures that prior authorizations made by the SEC and FERC continue in force under the act.