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Fortnightly Magazine - March 1 1995

"fewer synergies." What does that mean? John Barr, managing director of Barr Devlin Associates, noted that the gas industry was born already divided into its three basic groups: producers, pipelines, and LDCs. Neither group appears especially eager to sell its business. The synergies lie on the vertically integrated electric side, which most observers now see as comprising several distinct businesses that might function more effectively as independent concerns.

Branko Terzic, president of Yankee Energy, appears to agree: "The major impediment to LDC mergers is the lack of opportunity for operational savings." At the same time, Terzic suggests that gas executives have underestimated the marketing benefits that might come from combining the "many small LDCs." But regulators can get in the way. Says Terzic, "Two utilities getting together to talk merger is like three people getting together to make a baby."

"For those of you who predicted 'no change' in the Holding Company Act (PUHCA), well, you've lost your bet." That comment came from William C. Weeden, associate director of the Securities and Exchange Commission (SEC). As is customary when a government official speaks in public on agency business, Weeden carefully admonished his audience that his remarks did not represent SEC policy. Nevertheless, Weeden revealed that the SEC was reviewing its options and was trying to get the word out, especially after the release of its "Concept Paper" on PUHCA last summer. (The deadline for comments was February 6.)

After all, PUHCA is premised on a vertically integrated electric industry, with "natural" service territories that never cross state boundaries. That view vanished a long time ago. What about regional transmission groups? What about power marketers? PUHCA obviously stands in the way of these developments, just as it inhibits merger activity. As long as Congress doesn't repeal the Act entirely, the SEC will certainly change the way it interprets PUHCA, says Weeden. As evidence of that, Weeden pointed to a recent SEC order involving Georgia Power Co. and investment in the mobile telecommunications business.

If PUHCA is in play, what will the deals look like? Attorney William Baker, from Reid & Priest, noted that the New Orleans City Council (which acts in many ways like the 51st state utility commission) has already issued a resolution opposing PUHCA repeal. And one state commission, says Baker, has proposed to make PUHCA repeal conditional on forcing a certain mandatory holding company structure (presumably to maintain some degree of regulatory control). Baker favors PUHCA reform, but not if it will lead to the creation of 50 state "mini-PUHCAs." Baker speculated that independent power might want to trade PUHCA repeal for assurances on PURPA (the Public Utility Regulatory Policies Act). He observed that ELCON (The Electricity Consumers Resource Council) reportedly doesn't favor PUHCA repeal, but might trade for retail wheeling legislation.

Weeden noted that recent telephone calls placed to the SEC appear to indicate a rising interest in the formation of registered holding companies. (Also of note: The new telecommunications legislation recently proposed in the Republican Congress would offer an exemption to registered holding companies that enter the telecommunications