Energy Legal Blog

Books, Records and Prices: Implementing the New Holding Company Act

The Domenici-Barton Energy Policy Act of 2005 repeals the venerable Public Utility Holding Company Act of 1935 (’35 Act) and, effective February 8, 2006, replaces it with a 2005 Act bearing the same name (PUHCA 2005).  The earlier act’s structural limitations that confined holding companies to "a single integrated public-utility system, and to such other businesses as are reasonably incidental, or economically necessary or appropriate to the operations of such integrated public-utility system" are supplanted in PUHCA 2005 with what FERC in a recent rulemaking proposal calls “primarily a books and records access” statute.  Not surprisingly, in its notice of proposed rulemaking (NOPR) on how it should implement PUHCA 2005, FERC sets out how it proposes to exercise its new authority to ensure public — and particularly state regulatory — access to the books and records of future public utility holding companies.  To be considered, comments on the NOPR must be received by FERC 21 days after the NOPR is noticed in the Federal Register, which will likely occur in late October. 

While much of the NOPR addresses itself to record keeping obligations and exemptions from those obligations, it also raises more economically significant issues dealing with FERC’s new authority under PUHCA 2005 to review and authorize the pricing of and allocation of costs and revenues from non-power goods and administrative or management services that an associate company within a holding company provides to regulated public utilities within the same holding company.  In many respects, FERC proposes simply to adopt and continue the accounting rules and practices that the Securities and Exchange Commission (SEC) had developed under the ’35 Act for these intra-holding company transactions.  But in one critically important respect, FERC’s and the SEC’s approaches conflict and are not resolved in the NOPR.  That respect turns on how non-power goods and administrative or management services are priced and reflected in the public utility purchaser’s regulated rates.  The SEC’s historical practice was to set the price at cost — that is, equal to the cost that the associate company incurred in providing the non-power good or service.  But FERC, for its part, has applied a more consumer-oriented rule that sets price equal to the lower of cost or market.  For many players in the power and related services industries, perhaps the most important issue on which FERC invites public comment in the NOPR is “whether the Commission should apply [its own] lower of cost or market standard for the allocation of costs for non-power goods and services, or if [it] should instead adopt the SEC ‘at cost’ standard.”  [Repeal of the Public Utility Holding Company at of 1935 and Enactment of the Public Utility Holding Company Act of 2005, 113 FERC ¶ 61,248 (2005) NEW MATTER]