Remarks Of Isaac C. Hunt, Jr. Commissioner* U.S. Securities and Exchange Commission Washington, D.C. "The 1935 Act: Where Do We Go From Here?" The Energy Daily's 2nd Annual Finance Forum: Securitization, M&A Restructuring June 3, 1997 ______________ * The views expressed herein are those of Commissioner Hunt and do not necessarily represent those of the Commission, other Commissioners or the staff. U.S. Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 The 1935 Act: Where Do We Go From Here? Thank you for the opportunity to be with you today. My remarks will be brief, since I am very much looking forward to the panel discussion. Further, I will limit my remarks to the SEC's recent testimony on current PUHCA-related legislation before the Senate Banking Committee, and leave any personal observations for the subsequent panel discussion. When I learned that the Senate -- finally -- had confirmed my nomination to serve as a Commissioner at the U.S. Securities and Exchange Commission, several thoughts immediately came to me: (1) I would work at a well-respected agency with strong leadership and a talented and dedicated staff; (2) I would return to the District of Columbia, where I had lived and worked for years; and, (3) I would be able to take a leadership role with respect to many issues that I had considered and taught as a professor of securities law; Now let me tell you two thoughts that did not come to me on that day. First, I didn't think that on April 29, 1997, I would be testifying on behalf of the SEC before Senator D'Amato's Senate Banking Committee on Chairman D'Amato's bill to repeal the Public Utility Holding Company Act of 1935. Second, I didn't think that a former SEC Commissioner -- Rick Roberts -- would invite me to come to a gathering such as this one and offer my views on issues related to public utility holding companies. After all, the topic of PUHCA reform never was a subject of any of my law school classes. But here I am today, and there I was before the Senate Banking Committee just a few weeks ago. Before I begin, please note that the views I express today are my own, and are not necessarily the views of the SEC, my fellow Commissioners, or the SEC's staff. Of course, however, in these prepared remarks I am discussing testimony on behalf of the SEC, so I will try to succinctly state the agency's views. April 1997 Testimony SEC's Legislative Recommendations. The SEC's testimony supported Chairman D'Amato's bill -- Senate Bill 621 -- and the goals that it seeks to achieve. The bill would repeal the 1935 Act and establish a less pervasive framework for regulation of public utility holding companies. The SEC's view is that while the 1935 Act has been enormously successful legislation, it has become redundant in many respects. This redundancy has been caused by various factors, including: (1) the enormous changes occurring in the utility industry, (2) prudent administration of the Act, (3) expanded and strengthened state regulation; and (4) the development of federal regulation for all issuers of securities, including public utility holding companies. The testimony noted that in mid-1994, SEC staff, at the direction of Chairman Arthur Levitt, undertook a study of the regulation of public utility holding companies. That study was ably guided by then-Commissioner Roberts, and its purpose was to identify unnecessary and overlapping regulation, and also to identify those features of the 1935 Act that remain appropriate for the regulation of the contemporary electric and gas industries. In June 1995, the SEC staff issued its study, which proposed a range of legislative and administrative measures designed to eliminate unnecessary regulatory burdens on public utility holding companies. The study's preferred legislative option was repeal of the 1935 Act, accompanied by additional authority at the state and federal level to allow for the continued protection of consumers. Consumer protection would be accomplished through two concepts: (1) examination and oversight of transactions between or among holding company affiliates by the FERC, and (2) access to books and records by the FERC and state utility commissions. I testified that the SEC still believes that this conditional repeal approach is the wisest course, as it would achieve the economic benefits of unconditional repeal, and yet also preserve the ability of states to protect consumers. Chairman D'Amato's bill largely implements the SEC's conditional repeal approach, although the bill does not adopt the recommendation that the FERC have discretion to exercise jurisdiction over affiliate transactions. I testified that the SEC continues to believe that such authority is necessary to shield consumers from the potential abuses that may be involved in affiliate transactions. While the SEC supports the approach reflected in Chairman D'Amato's bill, I am sure I share the view of many here that Congressional action to repeal the 1935 Act probably won't occur in the near future. Proposals for comprehensive reform of energy legislation also are under consideration by Congress, and perhaps conditional repeal of the 1935 Act could be considered as part of that comprehensive reform effort. SEC's Administrative Recommendations. I testified that pending Congressional action, the SEC had begun to implement many of the administrative initiatives that were recommended in the 1995 study to streamline regulation. The study recommended: (1) rule amendments to broaden exemptions for routine financings by subsidiaries of registered holding companies; (2) rule amendments to provide a new exemption for acquisitions of interests in companies that engage in energy-related and gas-related activities; (3) changes in administration of the Act that would permit a "shelf" approach for approval of financing transactions, relax constraints on utility acquisitions, and streamline the approval process for such transactions; and (4) increased focus upon auditing regulated companies and assisting state and local regulators in obtaining access to books, records and accounts. Some, but not all, of these recommendations have been implemented. * * * In conclusion, I testified that by supporting conditional repeal, the SEC hopes to reduce unnecessary regulatory burdens on America's energy industry while providing adequate protections for energy consumers. It should be clear to everyone, however, that until such legislation is enacted the SEC will take seriously its duties to administer faithfully the letter and the spirit of the 1935 Act. Again, thank you for inviting me to be with you this morning.