January 31, 2000
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0609
Re: Registered Public Utility Holding Companies and Internationalization; SEC File No. S7-30-99
Dear Mr. Katz:
I am writing to respond to the Commission's concept release on Registered Public Utility Holding Companies and Internationalization ("Concept Release"). The Concept Release raises numerous issues under the Public Utility Holding Company Act of 1935 (the "1935 Act") regarding the acquisition of U.S. utility companies by foreign companies that will register under the Act.
At the outset, let me state that I have agreed to serve as a director of New England Power Company ("NEP"), a public utility subsidiary company of New England Electric System ("NEES"), and also as an independent member of NEP's Nuclear Committee to oversee its nuclear investments. NEES is a registered holding company under the 1935 Act and is presently before the Commission seeking authority for its merger with The National Grid Group plc, a U.K. utility company. I am in favor of this merger and I hope that the Commission approves it. My comments here are limited to the Energy Policy Act of 1992 amendments to the 1935 Act. At the time of the adoption of the Energy Policy Act, I was a Congressman from the State of Indiana and I served as Chairman of the House Subcommittee on Energy and Power in the House Committee on Energy and Commerce.
The Concept Release asks whether the 1935 Act permits foreign ownership. It also asks whether a foreign company can qualify its foreign utility operations under section 33 of the 1935 Act as an exempt foreign utility company ("FUCO") and acquire a U.S. utility without integrating the foreign and domestic assets. Stating that Congress did not address this possibility and may not have intended this result, the Concept Release notes: "The legislative history of the Energy Policy Act emphasizes that the legislation was designed to enable U.S. companies to respond to domestic and overseas investment opportunities. Nothing in the legislative history suggests that section 33 was intended to be a vehicle for foreign investment in the United States." Concept Release at 11.
The Energy Policy Act amended the 1935 Act to create two classes of exempt entities, exempt wholesale generators ("EWGs") and foreign utility companies ("FUCOs"). The EWG provisions in section 32 of the Act were intended to remove barriers to the development of a competitive market in generation.1 Further to that end, section 32 does not restrict the ownership of EWGs by foreign companies.
Section 33 was added late in the legislative process to allow companies to buy foreign utility properties that did not qualify under the narrow definition of an EWG. The broad language of the section 33 exemption was justified because a FUCO is limited to overseas utility activities and, with financial safeguards, presents little potential to adversely affect U.S. ratepayers.2
Although outbound acquisitions by U.S. utilities were the focus of the FUCO exemption, there was no intent to create an uneven playing field. When conditioned in a manner that protects the U.S. public interest to the same degree that would be present with U.S. registered holding companies, foreign ownership can be consistent with the 1935 Act. The Energy Policy Act was not intended to prohibit or form a barrier to foreign investment in U.S. utilities. It is entirely consistent with the Congressional intent in adopting section 33 to permit a foreign registered holding company to organize its foreign interests in an exempt FUCO and acquire U.S. utility companies.
Given the pace of competition and restructuring in the utility industry, I believe it is even more important today than it was in 1992 to keep U.S. markets open to foreign investors. As a general matter, investors in all industries benefit when the market for corporate control is active because it promotes accountability among corporate managements and the efficient allocation of resources. In the utility industry especially, consumers also may benefit when foreign acquirers bring expertise in utility operations and management to the acquired utility and when they provide increased access to lower-cost capital.
I hope that you will find these comments helpful. I commend the Commission on its continued efforts to protect the public interest by fostering healthy and competitive markets.
Philip R. Sharp
1 See, e.g., statement of Sen. Wallop, 138 Cong. Rec. S17615 (Oct. 8, 1992) (section 32 is intended to "streamline and minimize" federal regulation); statement of Chairman Riegel, 138 Cong. Rec. S17629 (Oct. 8, 1992) ("the purpose of section 33 is to facilitate foreign investment, not burden it").
2 See section 33(a)(3)(A).