The removal of investment restrictions when the Public Utility Holding Company Act of 1935 (PUHCA) is officially repealed in February must not “become a new impetus or justification for continuing the era of adversarial relationships between the utility sector and state or federal regulators,” David Sokol, chairman of MidAmerican Energy Holdings Co., said last Tuesday. “It absolutely is past time for all of us to work together to meet tomorrow’s challenges in this sector.”

“State regulators have already demonstrated that they have ample tools to reject transactions that don’t meet their state requirements,” Sokol noted at an Energy Daily/Edison Electric Institute (EEI) conference in Washington, DC. “Recently, as you’re aware, several hedge funds have been turned back in their attempts to acquire utilities in various states.”

Sokol said that “it is not our view, as many speculate, that we will see a rash of short-term speculative activity” in utility markets with the repeal of PUHCA. “But we will see outside capital begin to flow more freely into the industry to support capable, forward thinking management teams that exist in fair and balanced regulatory jurisdictions. Such investment is absolutely critical as this industry moves into a heavy capital deployment period from the most recent harvesting period of the last 10 to 20 years.”

The Energy Policy Act of 2005 repeals PUHCA and removes the Securities and Exchange Commission (SEC) as the main overseer of holding companies. In its place, the law allows FERC and state regulators greater access to the companies’ books and records. The law also gives FERC some additional authority in overseeing mergers, including oversight of utility acquisitions of generating assets.

During the Q&A portion of the conference, David Owens, executive vice president in EEI’s business operations group, said there is “a fear that’s beginning to evolve in the industry that some of the state regulatory commissions may be seeking to have their legislatures adopt mini-PUHCAs.” Owens asked Sokol to comment on “how we get out in front of that issue.”

Sokol noted that there is “so much misunderstanding about what PUHCA…is and is not because we are seeing some of the same things you’re seeing.” He said that there are “over 6,000 professional regulators in the states. There were 23 full-time employees at the Securities and Exchange Commission that deal with PUHCA.” With PUHCA’s repeal, there’s a false perception that “we’ve now unleashed all the evils of the world upon the United States because those 23 people will no longer” have PUHCA-related responsibilities.

Sokol said that “there is not a state we deal with that doesn’t view themselves as far more competent to regulate us than PUHCA. I’d say every state that we’re involved with was in favor of PUHCA’s repeal…”

The chief of MidAmerican Energy Holdings has also heard the question, “what are you going to do about the consumer protections in PUHCA that are now gone?” But when one sits down and reads the 70-year-old law, there are no sections dealing with consumer protections, Sokol pointed out.

This summer, the New Jersey Board of Public Utilities ordered its staff to research how certain PUHCA protections should be continued at the state level.

Meanwhile, Sokol said that the reality of Hurricanes Katrina and Rita “have drawn home to all of us that the energy act of 2005, as far as it went, cannot and will not solve many of the short-term or long-term problems faced by the U.S. energy sector.” As the U.S. faces “record prices for gasoline and diesel fuels, natural gas and coal, we just can’t return to business as usual. The adversarial model of policy development simply won’t get the job done this time.”

Sokol said that lawmakers on Capitol Hill “must move and must move now to address the areas of the energy policy where a lack of consensus prevented them from being moved just this summer.”

In the short-term, “federal and state governments, we believe, should at a minimum set targets for their own states and federal use of energy and its consumption at all of their facilities for this winter. They must call on industry to meet comparable conservation targets and provide national recognition to companies and states that voluntarily meet those goals.”

Sokol also called for the review of “all relevant regulatory policies to determine where advance waivers or similar such approvals can facilitate the delivery of energy to consumers where it is going to be needed this winter.” He also called for the full funding of the federal Low-Income Home Energy Assistance Program (LIHEAP), “recognizing the devastating impacts today’s prices will have on the most vulnerable citizens in all of our states.”

He also said the country has to start establishing “genuine principles for 21st century energy policy, and we believe there has to be three fundamental pillars of understanding which will support such a policy. The first is the reality that the energy industry has to serve as the underpinning of a robust and growing U.S. economy. Secondly, we have to develop technology-driven solutions to long-term energy and environmental needs which incorporate strong fuel diversity and the recognition of concerns regarding global climate change.”

Third, “we have to agree on a market structure that provides relative price stability for consumers and industry and a reasonable degree of regulatory certainty for investors.”

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