The CHAIRMAN [presiding]. Thank you, Ms. Eckert. Next, Charles A. Patrizia, representing the Registered Electric Utility Holding Companies. STATEMENT OF CHARLES A. PATRIZIA, ON BEHALF OF THE REGISTERED ELECTRIC UTILITY HOLDING COMPANIES Mr. PATRIZIA. Thank you, Mr. Chairman. My name is Charles Patrizia, and I am very pleased to have this opportunity to testify today on the issues of particular importance to the registered electric utility holding companies raised by title XV of S. 341. I have prepared testimony that I have submitted, and I would request, Mr. Chairman, that that be made a part of the record. The CHAIRMAN. It will be. Mr. PATRIZIA. I am testifying on behalf of an ad hoc group of eight registered electric utility holding companies. These eight utility holding companies, through their operating and service company affiliates, serve over 12.5 million customers in 21 States, account for approximately 13.5 percent of the total electricity generation capacity of the United States, and have over 90,000 employees. În 1935, to correct abuses among electric utility holding companies-including pyramiding, deceptive financial practices, and inadequate State regulatory structures-Congress enacted the Public Utility Holding Company Act of 1935. The 1935 act granted pervasive regulatory jurisdiction over financial aspects of the utility holding companies to the Securities and Exchange Commission, and mandated continuing SEC oversight. As part of the same series of enactments, Congress also granted to the Federal Power Commission, the predecessor agency to the Federal Energy Regulatory Commission, the authority to regulate wholesale and interstate transactions in capacity and energy. At the time of PUHCA's enactment, there were over 200 utility holding companies. Today, only nine registered electric utility companies remain—I would add that there area about 90 exempt companies. And in accordance with PUHCA's original goals, they are highly integrated, electric utility systems. They pool reserves, they coordinate the construction of generating units, they coordinate scheduled maintenance, and they centrally dispatch the generating system's facilities within the system. As a result, the registered holding companies provide numerous benefits to investors, to consumers, and to the general public, with the most important benefit being the provision of cost-effective electric energy to more than 12.5 million residential, industrial, and commercial consumers. As the companies most affected by the Holding Company Act, and given our expertise in the design, engineering, and operation of generating facilities, the registered companies would view with great concern any legislation that purports to encourage competition in the wholesale generation market-but effectively would prevent the registered companies from engaging as equals with other utilities and nonutility developers, in the development of new generation sources. Congress, of course, must answer the question of whether the National Energy Policy requires changes to the 1935 act. The registered holding companies, like the utility industry generally, hold different views on the need for new corporate structures to encourage the construction of generation facilities. The registered companies are united, however, behind several principles with respect to any amendments that would alter the requirements of the 1935 act. These three principles are: first, if the Holding Company Act is to be amended, all types of entities must be able to participate on the same basis. We appreciate the effort the chairman has made in drafting S. 341 in that regard. But we do have some questions that still remain, on that score, Mr. Chair man. Second, transmission access is not a 1935 act issue and should not be part of this debate. Third, regulatory burdens and uncertainties should not be increased, and certainly should not be increased only for some. Recognition of these principles is essential to a bill that would accomplish its intent of fostering greater competition in the generation sector. Let me now go into a little bit more details on these views. First, that all types of entities must be able to participate on an equal basis. If the policy debate before Congress is resolved in favor of revising the act, to encourage the formation of electric wholesale generators, the registered companies would unite in opposing any bill that would exclude registered companies from participation in this field, or would free other kinds of companies from the 1935 act's burdens with respect to EWG's, but continue to subject the registered companies to all of the 1935 act's burdens. Either outcome would leave the registered companies unable to compete on an equal footing. In this regard, we appreciate the approach adopted in S. 341. It seeks to allow registered companies to own EWG's on an equal basis, while retaining the existing regulatory structure with respect to other aspects of the registered companies. To ensure that registered companies are permitted to compete on an equal basis, we would ask Congress to consider explicitly providing that at least limited security or guarantee issuances by a registered company to finance an EWG would not require prior SEC approval. That is an issue, Mr. Chairman, that was discussed this morning with Mr. Fleischman from the Securities and Exchange Commission. We appreciated his response indicating that the Commission might look favorably on some of these things, but really believe that we need some additional certainty in that regard. We will be happy to work with the staff and with the commission in trying to review those sorts of provisions. Second, we ask Congress to consider explicitly stating that registered holding companies should be permitted to finance EWG's without regard to the SEC mandated debt-equity ratios currently established for the registered companies. Again, that issue was discussed with Mr. Fleischman this morning. Again, we would be happy to work with staff and with the commission in trying to address those issues. The second principle that we had is that transmission access is not a 1935 act issue. We are very appreciative of your statement this morning, Mr. Chairman, noting that transmission is not an issue which is on the table. We were very appreciative of that. Because under the 1935 act, the registered companies are required to inter-connect their affiliate generation facilities, so as to be capable of integrated operation. Proper use of transmission capacity is the key to operation and dispatch of our inter-connected facilities. Control and use of transmission systems are essential to reliability, and to economic operation of a centrally dispatched system. For these reasons we believe that transmission access is not properly addressed in the context of amendments to the 1935 act. The FERC is currently reviewing and acting upon the issue of transmission access. There are many significant proposals and developments underway. We believe that Congress should give time for that process to evolve and allow FERC, the regulatory agency with the greatest expertise in this area, the room to address these issues. We believe the administration's recently proposed National Energy Strategy properly recommends that legislative action should be pursued, only if it is clearly established that FERC's authority and its ongoing regulatory efforts prove to be inadequate. Third, regulatory burdens and uncertainties should not be increased. Proponents have urged that amending the 1935 act will encourage greater competition in the generating sector, and that that competition will bring more economic and reliable service. The goals of more economic and reliable service, however, will be defeated if the amendments increase regulatory burdens, or engender greater regulatory uncertainty. This is particularly true if only some of the participants in the market are subject to increased regulatory burdens, or increased uncertainty. The existing regulatory structures and divisions of authority have been the subject of consistent agency and court interpretation. That framework is well understood, and the burdens for those utilities, considering the purchase from an EWG are known. In enacting the Holding Company Act and the Federal Power Act, Congress established a specific jurisdictional scheme under which the SEC would retain control and oversight over the financial and securities markets aspects of a multistate holding company. And the States would regulate the affiliates. Likewise, the Federal Power Commission, now FERC, would regulate the sales of electricity and interstate commerce at wholesale, to distributing companies, and States would regulate the retail sales to ultimate consumers. For the last 50 years, when the sale of energy at wholesale and interstate commerce, or the regulation of multistate holding companies is at issue, only a neutral, Federal, administrative forum has been appropriate. Likewise, if the interest is a rate for sales of energy at retail to ultimate consumers, the individual State regulatory agency is the most appropriate forum. The current legislation to encourage EWG's does not change that basic analysis. There is no need for drastic restructuring, simply because some feel that FERC and the SEC have decided cases differently than some State commissions would have preferred. More over, the portrayal of FERC as a woefully inadequate regulatory body, or a safe harbor in regulating multistate companies is not borne out by the commission's record, or the experience of the holding companies in proceedings before the commission. In the case of multistate holding companies, and agreements for wholesale rates impacting on several States, consumers overall will suffer if a neutral, Federal forum is not available. Agreements that increase efficient operation-from simple pooling arrangements, to registered electric utility holding company system agreements— create an overall benefit to consumers of all the utilities, because the individual utilities agree to subordinate their interests, to those of the integrated pool. State commissions necessarily focus on the costs and benefits to their jurisdictional customers only. As long as pooling arrangements exist, and their mutual benefits are to be shared, overall control and regulation must be in the hands of a neutral, Federal administrative agency. Some have advocated the creation of a regional regulatory board as an alternative to FERC. There are a number of potential problems with using such a regulatory authority, and including that kind of provision will make it likely that there will be further delay, further uncertainty, and less predictability in reviewing EWG purchase agreements. The registered companies also oppose codification of a Pike County holding, because codification could work substantial mischief for the registered companies which must operate as a single, integrated system. Holding company affiliates operate within a pool, and lack the free choice among sources of power that is the underlying premise of Pike County. Codifying the holding in Pike County would effectively stifle the development of the independent generation sector, especially in selling to utilities operating as integrated pools because of the risks associated with the purchase from an EWG. PUHCA reform and the creation of EWG's does not alter the interests at issue, or the need to restructure the locus of the decisionmaking authority. The current framework as interpreted by the courts, and applied by Federal and State regulatory authorities has provided and continues to provide adequate safeguards to the American consumer, and the existence of EWG's will not affect this careful balance between State and Federal interests. Mr. Chairman, I thank you very much for the opportunity to appear today. I will be very happy to respond to questions. [The prepared statement of Mr. Patrizia follows:] |