Electricity Supply

How adequately are consumers and investors protected in the electric utility industry? This report looks at (1) recent changes within the electric utility industry that involve utility holding companies; (2) the effect of these changes on the Securities and Exchange Commission's (SEC) administration of the Public Utility Holding Company Act of 1935; and (3) the relationship between SEC, the Federal Energy Regulatory Commission, and state regulators in protecting consumer and investor interests in the changing industry.

GAO found that: (1) within the past decade, significant restructuring occurred within the electric utility industry, due to economic, legislative, and other related factors; (2) restructuring activities included formation of holding companies by electric utilities, mergers or acquisitions of electric utilities by other utilities, and development of nonutility wholesale generators; (3) because those structural changes involved utility holding companies that were exempt from most PUHCA regulations, SEC administration of the act has not been greatly affected; (4) SEC relied largely on states to regulate the exempt holding companies, as provided by PUHCA; (5) over the past decade, FERC and state regulators had a greater role than SEC in protecting consumer and investor interests; (6) FERC reviews certain mergers and acquisitions to ensure that they are consistent with the public interest, and approves wholesale rates; (7) most state commissions do not directly regulate utility holding companies, but they may review such utility transactions as security issuances and mergers and acquisitions; (8) state commissions can generally protect consumers from adverse impacts of holding-company diversification through their retail ratemaking authority; and (9) regulation of utilities and holding companies, as well as the number and operations of such companies, varies among states.