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CPUC Sets Post-PUHCA Holding Company Rules

In response to last year's repeal of the Public Utilities Holding Company Act (PUHCA), the California Public Utilities Commission (CPUC) unanimously approved new rules governing private sector utilities and their holding companies. Action by the CPUC had been delayed or postponed for several months, but none of the affected companies objected to the action.

The CPUC set new rules that are designed to prevent conflicts of interest from developing or proprietary information from being shared between utilities and their affiliates. There are various new reporting requirements under the new guidelines.

"With these new rules the public will be better assured that the utilities will fulfill their obligations," said CPUC Commissioner Geoffrey Brown in his last session as a state regulator. His six-year term expires the end of this month and the commission has no more scheduled meetings this year.

"It's a major step forward and does, in fact, protect the interests of the California ratepayers," said Commissioner John Bohn.

The CPUC examined its rules related to holding companies, particularly the rules that protect utilities from bankruptcies that might occur in other parts of a holding company's organization.

The CPUC's action amounts to a series of rule revisions regarding conduct and business interactions among utilities, their holding companies and nonutility affiliates of holding companies. They are generally called the "affiliate transaction rules," designed to "close loopholes" in three principal areas:

The new rules apply to only four major private-sector utilities: Pacific Gas and Electric Co., Southern California Edison Co., San Diego Gas and Electric Co., and Southern California Gas Co., and their respective holding companies -- PG&E Corp., Edison International, and Sempra Energy (for SDG&E and SoCalGas).

Aimed at the so-called "loopholes," the new rules apply to the holding companies where such a utility "confers preferential treatment, unfair competitive advantages, or nonpublic information on its affiliate(s)." It also prohibits holding companies from aiding affiliate violations or providing a conduit for nonpublic information. And it requires that any information passed back and forth between utilities and affiliates "be preapproved by the CPUC" with the exception of blind transactions.

Ultimately, the new rules require key officers to certify that they know of no affiliate violations. It doesn't prohibit the sharing of employees, but it recognizes that there are cases where the interests of the two companies split. For example, while it might help the corporation for a utility to award a contract to an affiliate, the deal may, in fact, prove of negative benefit to utility ratepayers.

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