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The Senate Energy and Natural Resources Committee voted by an overwhelming voice vote Thursday to include in a wide-ranging energy bill a provision repealing the Public Utility Holding Company Act, a 1935 law that restricts mergers and acquisitions in the power-utility sector. Industry observers have long anticipated PUHCA’s repeal, which President Bush called for and the House approved in an energy bill passed in April. Many were surprised to learn earlier this month that repeal had not been included in the Senate’s draft energy bill. After including PUHCA’s repeal, the committee passed the overall energy bill by a 21-1 vote. PUHCA’s repeal was hung up in the Senate committee as Democrats sought to give the Federal Energy Regulatory Commission increased oversight over utility mergers to offset the consumer protections they say will be lost if PUHCA is abolished. Among other things, PUHCA prohibits risky investments using ratepayer revenue, and it seeks to prevent large concentrations of utility ownership. On Wednesday, committee members came to an agreement that bolsters FERC’s powers while creating a national grid watchdog to set and enforce mandatory transmission reliability standards. Committee Chairman Pete Domenici, R-N.M., who opposed greater powers for FERC, said Thursday that he accepted the compromise even though he believes that the merger-review language offered by Jeff Bingaman of New Mexico, the committee’s senior Democrat, was too broad. “Senator Bingaman has long envisioned and championed a stronger merger review, and we have to take into consideration his concerns,” Domenici said. Domenici said repealing PUHCA does not mean the repeal of consumer protections, and he added fears of a “regulatory vacuum” are unwarranted. “State and federal regulations are going to continue to protect ratepayers,” Domenici said, “and in addition the Department of Justice and the Federal Trade Commission will continue to protect against trade violations.” Domenici said opponents of repeal fail to understand that PUHCA hinders sorely needed investment in the nation’s electricity grid. “We have been told by those who know the investment opportunities in the grid of the United States that PUHCA is an inhibition to substantially more investment in transmission,” he said. The new oversight proposed for FERC would allow it to review mergers of $10 million or more and would authorize it to review acquisitions of gas utilities by electrical utilities. It would also require FERC to approve a public utility’s acquisition of generation facilities that fall under the commission’s jurisdiction. FERC must also evaluate a merger’s effects on markets, rates and regulation. But the most important requirement deals with how the commission handles “cross subsidizations” of associate companies. “FERC is required to make a finding that transactions do not result in cross-subsidization of associate companies to the detriment of the utility,” Domenici said. However, Lynn Hargis, an attorney at Washington-based consumer-advocacy group Public Citizen, said the new provisions give FERC no additional authority. “They’re raising the merger threshold from $50,000 of jurisdictional assets to $10 million,” she said, which allows companies to break up the assets so they come in below the review threshold. Hargis, who opposes PUHCA’s repeal, added that the new authority does not give FERC a standard by which to reject mergers. Several Republican lawmakers also objected to the FERC provisions. “Clearly we need to get rid of PUHCA,” said Sen. Craig Thomas of Wyoming, “and there probably needs to be some limited authority granted to FERC as you replace that. But I do have to suggest that this goes a little further than necessary.” Thomas suggested watering down those provisions when the bill goes to the Senate floor and then to conference with the House. “I believe that we’ve gone too far with FERC here and could have accomplished this by giving them limited authority to replace what is being taken out,” he said. Sen. Richard Burr, R-N.C., also emphasized his displeasure with FERC. “I want to see this bill pass and will be supportive, but this is an unbelievable expansion of FERC’s authority in an area where states have the responsibility for generation.” He added that the additional powers proposed for FERC do not set time limits on reviews, except for small mergers. “The one thing that is an injustice is the lack of specificity, the lack of predictability about what’s going to happen in these markets when these mergers take place,” he said. “It’s a tremendous capital commitment. Wall Street is not going to respond well.” The Senate leadership has indicated the energy bill will go before the full Senate soon after members return from their weeklong Memorial Day recess. Three large power deals could hinge on whether the law is repealed. ScottishPower plc announced on Wednesday that it has agreed to sell Portland, Ore., utility PacifiCorp to Berkshire Hathaway Inc. unit MidAmerican Energy Holdings Co. for $9.4 billion. Chicago giant Exelon Corp. agreed in December to buy Newark, N.J.-based Public Service Enterprise Group Inc. for $13.2 billion, and Charlotte, N.C.-based Duke Energy Corp. agreed in May to buy Cincinnati’s Cinergy Corp. for $9 billion. Copyright �2005 TDD, LLC. All rights reserved.

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