Analysis of SEC's Recommendation To Repeal the Public Utility Holding Company Act

In response to a congressional request, GAO reviewed the adequacy of the Securities and Exchange Commission's (SEC) justification for recommending that the Public Utility Holding Company Act be repealed. The act's provisions were intended to protect the public, investors, and consumers from abuses associated with the control of electric and gas utility companies through the holding company structure, and it directed SEC to reorganize public utility holding companies and to provide for their continued surveillance. SEC now believes that the act should be repealed, stating that it has completed reorganization of the holding companies and that the act's remaining provisions either duplicate other Federal or State regulations or are no longer necessary.

GAO found that SEC administration of the act has been effective in breaking up, reorganizing, and simplifying holding companies; however, the act also authorizes other activities such as SEC regulation of security transactions of the registered companies and their utility subsidiaries, deterring the creation of holding companies, and monitoring the activities of exempt companies. Although some of the act's provisions are similar to other Federal regulations, GAO has identified some regulatory areas that would not be authorized by other laws. These areas include the approval of acquisitions and financing of holding companies and the review of cost allocations between holding companies and their service companies and utility subsidiaries. The consequences of these regulatory gaps are uncertain, but some officials feel that the gaps could adversely affect ratepayers in particular. GAO contacted officials from 15 States, a majority of which commented that States may not be in an adequate position to protect ratepayers because of legal and practical problems that could occur, such as a State's inability to obtain records from a holding company located outside of its jurisdiction. GAO feels that SEC did not fully consider the potential effects that regulatory gaps at the Federal level, if the act is repealed, would have on consumers and on States' abilities to regulate utility holding companies and to protect consumers.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: John W. Sprague Team: General Accounting Office: Resources, Community, and Economic Development Division Phone: (202) 512-7783