March 5, 2004
Enron’s “Bad Faith” Request to Avoid Federal Regulation as a Utility Holding Company Is Unlawful, Public Citizen Tells SEC
Public Citizen Seeks Effective Regulation to Protect Ratepayers of Oregon Utility
WASHINGTON, D.C. – Public Citizen today filed a motion with the U.S. Securities and Exchange Commission (SEC) requesting that the agency reject the latest in a string of requests by Enron Corp. for an exemption from regulation under the Public Utility Holding Company Act (PUHCA), a vital consumer protection act. Public Citizen’s motion demonstrates that Enron does not meet even the minimal “objective standards” for the PUHCA exemption it now seeks.
PUHCA protects consumers from high electricity and natural gas rates by prohibiting multi-state public utility owners from speculating in non-utility businesses. Enron is considered a holding company under PUHCA because it owns Portland General Electric (PGE), an Oregon public utility that Enron acquired in 1997. The exemption Enron now seeks applies only to companies that “temporarily” acquire utilities as a result of foreclosure proceedings — a category that does not cover Enron’s acquisition of PGE.
Documents Enron filed requesting an exemption from PUHCA indicate that the company is attempting to use its request as a bargaining chip to obtain SEC approval of a reorganization plan that includes the controversial proposed sale of PGE to a Texas investment company. The documents suggest that Enron will agree to “register” under PUHCA only if the SEC approves its plan.
“The SEC can’t let Enron get away with this kind of maneuver,” said Lynn Hargis, an attorney with Public Citizen’s energy program. “To protect the ratepayers of Portland General Electric, the SEC should assert its clear authority under PUHCA first and consider whether to approve Enron’s plan only after making it clear that Enron is not exempt from regulation.”
Public Citizen also has asked the SEC to find that Enron’s PUHCA exemption application was not made in “good faith,” since Enron clearly doesn’t qualify for it. If the SEC so finds, Enron’s ongoing noncompliance with PUHCA while its application is pending may be found to be unlawful.
Enron formerly claimed other exemptions from PUHCA regulation, but the SEC determined in December that the exemptions it was then claiming were not available to Enron (a decision that led the company to file its claim for the inapplicable foreclosure exemption). In addition, in previous years the SEC staff issued a number of “no-action” letters that allowed Enron to engage in various utility activities, such as power marketing, without regulation under PUHCA. Though the SEC’s December ruling made clear that those letters did not reflect the commission’s view, the effect of the past exemption claims and the no-action letters was to free Enron from effective regulation for many years.
A recent analysis by Standard & Poor’s credit rating agency found that PUHCA should be more strongly enforced because it has protected utility credit ratings. The analysis was attached to Public Citizen’s motion. Despite the many benefits PUHCA provides to ratepayers, the act would be repealed under the energy bill pending before Congress.
“Given what we know about the benefits of PUHCA regulation, it seems likely that the SEC’s past failure to enforce it against Enron contributed to the Enron debacle,” Hargis said.
Click here to read the motion.