Change was the operative word this year in New Orleans at the annual gathering the National Association of Regulatory Utility Commissioners. Bob Anderson, Montana commissioner and outgoing president of NARUC, cited global competitiveness, technology and a political swing toward state's rights in his opening address. "State commissions have to respond to these powerful forces," he warned. "We don't have a choice."

Adding to the mood was the announcement, two days earlier, of a merger between IES Industries Inc., Interstate Power Co., and WPL Holdings, Inc. Interstate Energy Corp., the new parent, will serve more than 1.2 million gas and electric customers in Minnesota, Illinois, and Wisconsin. After shareholder and regulatory approvals, the corporation will rank 34th among U.S. utility holding companies.

Such mergers are the future, said Robert P. Wason, chief financial analyst at the Securities and Exchange Commission's (SEC's) Office of Public Utility Regulation. By the end of 1996, 35 states will likely be affected by registered holding company operations, up from 26 states now (see sidebar). If the Public Utility Holding Company Act (PUHCA) escapes Congressional repeal or reform, registered holding companies could double to 30. Potentially, a third of the top 30 investor-owned utilities (IOUs) would become registered holding companies, Wason said. These IOUs are "major players" in acquisitions overseas.

Wason said the SEC wasn't taking sides in the PUHCA debate, although it wants to ensure that states have access to holding company books and records. The SEC also wants to be able to audit companies and affiliate transactions. "Competition is here to stay, and there needs to be a balance of monitoring and measuring the effects of that competition upon investors and consumers," Wason urged.

Klaus Bergman, CEO of Allegheny Power System, Inc., came out strongly in favor of PUCHA repeal: "In today's world, PUHCA is not only no longer necessary, but actually counterproductive; it hinders competition and deprives the customers of the registered systems of competitive benefits."

Craig A. Glazer, chairman of the Ohio Public Utilities Commission, noted that PUHCA's passage in 1935 put an end to industry bidding wars. NARUC protested the Act in favor of state's rights, but federal intervention won out. Now, however, states have working relationships with these companies, Glazer said, citing the "harmonius regulation" that developed between the Ohio commission and CINergy, another 1995 merger. "My message to the registered holding companies is, if you want this to happen in Congress, maybe you can just ram it through, . . . but it would be really important to have state regulators on your side."

More talk of change was voiced by the electric utility restructuring panel. William D. Harvey of Wisconsin Power & Light Co. argued that while regulators change to adapt to the market, utilities must also: "It is time . . . for utilities to start making money the way any other company makes money (em by earning it through performance, not by redecorating our offices and putting the cost in our rate base."

Harvey took co-panelist Susan Tomasky, FERC general counsel, to task on stranded investment

recovery: "Not only is the mega-NOPR anti- competitive . . . [i]t sustains an old regulatory mindset that places the interests of utilities ahead of the interests of customers. By allowing utilities to recover all stranded investments, FERC is asking customers to bail out those utilities that made . . . unwise decisions. FERC's stranded-investment recovery plan actually discourages customers from patronizing the lowest-cost energy suppliers."

Tomasky chose to address the question of

federal-state jurisdiction, contending that the FERC has no "carefully crafted scheme to grab jurisdiction from the states in pursuit of a seamless web of

federally dominated utility regulation. . . . The truth is, our Commissioners, I believe, want nothing more than to permit states to pursue retail access if they so choose, unimpeded by the feds."

This cooperative spirit was much in evidence at a full-house meeting attended by the Federal Energy Regulatory Commission (FERC), despite the prediction of Texas's Robert W. Gee:" There will be no high fives at the end of this two-hour conference." No voices were raised during FERC chair Elizabeth Anne Moler's "crazy experiment." There were only productive exchanges. And tentative plans for future get-togethers.

Moler predicted nonproductive court battles unless state and federal regulators found "practical, workable solutions" to important issues. She also noted that the market, not the FERC, was the driver behind restructuring and deregulation of the electric power industry. "We are introducing competition," she said. "We want willing buyers and willing sellers to be able to get together.

"We are not on a mission to expand our jurisdiction. A proposed definition of what is local distribution is included in the NOPR. If we need to change the definition, fine. We will, if we can be convinced that there is something that is more workable, that is consistent with our legal requirements."

One regulator asked if the FERC and the states would be preempted by Congress. Moler said the FERC recently attended its first Congressional oversight hearing on the mega-NOPR, and that open access wasn't questioned. "They do want us to work with the states," she said. "That's very clear."

Christine E.M. Alvarez of the Colorado Public Utilities Commission asked the Commissioners to define the state-federal jurisdictional line in service delivery.

"Are you concerned the NOPR erodes your jurisdiction?" asked FERC Commissioner William L. Massey. "Or are you concerned the NOPR doesn't leave you with a piece of jurisdiction?"

"Both," Alvarez answered.

"If you know you're going to have a piece of every transaction, is that good enough?" Massey said. "I'm not talking about how big a piece it is, but a piece. Something to hang your costs on and to work your will."

Alvarez suggested that the states retain jurisdiction over retail transactions, but didn't offer a transaction size.

As the convention drew to a close, NARUC voted in a new president, Cheryl L. Parrino, chair of the Wisconsin Public Service Commission. Parrino thanked and commended the candidate slated for the presidential dais (em outgoing first vice president Edward H. Salmon (em who withdrew his candidacy in October, citing "baseless allegations" that the New Jersey Ethical Commission would be unable to resolve until after the election. Parrino's acceptance speech echoed the theme of change, admonishing her peers: "We need more than talk. We need action." t

Joseph F. Schuler, Jr. is associate editor of PUBLIC UTILITIES FORTNIGHTLY.

PUHCA Stats: What's at Issue?

Registered holding companies number 15 and render $5 billion in services annually: $4.2 billion for manpower, $800 million for fuel. Affiliate transactions--such as intercompany loans and money pool transactions--make up $10 billion each year.

The 15 companies have 97 utility subsidiaries and 278 nonutility subsidiaries: $135 billion in nonutility assets; $46 billion in nonutility revenues.

Exempt holding companies total 165, with 176 utility subsidiaries and 2,250 nonutility subsidiaries.

Source: Robert P. Wason, chief financial analyst, Office of Public Utility Regulation, Securities and Exchange Commission

NARUC Resolves

Commending Virginia's "take-charge" investigation of federal inaction on nuclear fuel disposal, NARUC encouraged its commissioners to follow that state's lead. Iowa commissioner Emmit J. George, Jr. called on "state commissions to search for ways to ensure ratepayers receive value for their [$11 million]." NARUC called for immediate legislation and the timely removal of spent fuel from 70 sites nationwide.

. . .

Endorsing a guide for storage of natural gas in salt mines as a model for state regulators, NARUC noted that it was up to the states and the storage sites to monitor safety standards. Design, construction, and maintenance of these facilities also fall under state jurisdiction, NARC noted, since they aren't covered by the Natural Gas Pipeline Safety Act.

. . .

NARUC will support a 20-percent flat tax credit for collaborative gas and electric research. The Congressional legislation would modify existing legislation that provides tax credits for individual research, but not for collaborative research.

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