U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission


In The Matter of ) Administrative Proceeding
Applications of Enron Corp. for Exemptions
Under the Public Utility Holding Company
Act of 1935 (No. 70 -10190)
File No. 3-11373


Pursuant to Rules 154 and 210 of the Rules of Practice, 17 C.F.R. §§ 201.154 and 201.210, Public Citizen, Inc., ("Public Citizen") hereby respectfully moves the Securities and Exchange Commission ("the Commission") to grant Public Citizen leave to participate on a limited basis in the above-captioned proceeding. Public Citizen is a thirty-three-year-old, non-profit, consumer advocacy group with more than 160,000 members nationwide, including some 4,100 in Oregon. Public Citizen appears before Congress, administrative agencies, and the courts on a wide range of issues. Public Citizen has long supported vigorous enforcement, rather than repeal, of the Public Utility Holding Company Act of 1935 ("PUHCA" or the "Holding Company Act"), a potent and effective statute administered by this Commission that has protected utility investors, consumers and the national economy for nearly 70 years.1 Virtually all of Public Citizen's members are electricity consumers and as such, will be affected by the Commission's administration of PUHCA. In addition, many of Public Citizen's members own utility stocks, either through mutual funds or otherwise, as part of their 401(k) plans or other pension plans, and as such, will be affected by the Commission's administration of PUHCA. For these reasons, it is apparent that this proceeding is a "matter affecting [the] interests" of Public Citizen and its members within the meaning of 17 C.F.R. § 201.210(c). It is useful to recall, as this Commission reported to Congress in 1995, that prior to PUHCA's effectiveness, there were 53 utility holding company bankruptcies and 16 bank loan defaults from 1929 to 1936. However, there has not been a single PUHCA-regulated (registered) electric utility holding company bankruptcy since PUHCA became effective. Because of facts like these, securities law expert Dean Joel Seligman, has written that PUHCA enforcement "historically has been the SEC's single most useful accomplishment."2

Public Citizen opposes the most recent (January 4, 2004) application of Enron Corporation ("Enron") for exemption from PUHCA as a holding company, this one filed in this proceeding under section 3(a)(4) of PUHCA. Public Citizen believes Enron does not and cannot qualify for this exemption under the plain terms of the statute.

Statement Opposing Enron's Application

Section 3(a)(4) applies by its terms to a holding company that is temporarily a statutory "holding company" "

solely by reason of the acquisition of securities for purposes of liquidation or distribution in connection with a bona fide debt previously contracted or in connection with a bona fide arrangement for the underwriting or distribution of securities;"
(15 U.S.C. § 79c(a)(4), emphasis supplied).

As the Commission is well aware, Enron did not become a statutory holding company "solely" because it acquired securities as a result of a bankruptcy or debt. Enron became a "holding company" under PUHCA because it acquired the voting securities of a statutory "public utility company," Portland General Electric, on July 2, 1997. The fact that Enron then ran its holding company into bankruptcy does not now qualify it for a section 3(a)(4) exemption, which applies when a company is a statutory holding company "solely" because it has acquired ownership of utility securities through foreclosure or liquidation. Enron's argument that it qualifies for such an exemption because it has declared bankruptcy years after it became a holding company is tantamount to the classic plea of the man who killed his parents claiming that he deserves mercy because he is an orphan. Section 3(a)(4) does not provide the Commission authority to permit such a regulatory travesty.

Enron's application belies its own argument that it qualifies for a section 3(a)(4) exemption. Enron quotes (at pp. 9 and 10 of its application) from the 1995 report to Congress regarding the legislative history of the section 3(a)(4):

"[I]t appears that the exemption was intended to address a narrow set of circumstances in which holding company status was temporary, inadvertent, and unaccompanied by the intent to exercise control...."

Accepting these criteria, there was nothing either temporary or inadvertent about Enron's acquisition of Portland General Electric. Enron reincorporated in Oregon in 1997 for the sole purpose of acquiring control over Portland General Electric without having to register as a holding company under PUHCA. Enron thereafter filed for an exemption under section 3(a)(1), which is available only to a holding company that is incorporated in the same state in which its public utility operates. Enron in fact enjoyed a section 3(a)(1) exemption, by filing under Rule 2, from 1997 until its recent collapse.

And Enron has certainly had, and continues to have, "control" over the voting stock of Portland General Electric. Indeed, in its application in this proceeding, the closest Enron can come to its own cited criteria for a section 3(a)(4) exemption is to state that Enron won't hold or control the Portland General common stock "for investment purposes" or "for the purpose of exercising control over Portland General contrary to the protected interests under the Act." (Application at p. 9). If such a profession of good intentions were all it took to demonstrate that a holding company lacked "control" under PUHCA, there wouldn't be any companies that were required to register under the Holding Company Act. (Indeed, there would be no statutory "holding companies" at all.) In short, under its own stated criteria for a section 3(a)(4) exemption, Enron has failed to make a prima facie case for this exemption.

Enron argues that it is too far into its bankruptcy proceedings to now be required to register under PUHCA. Even if the Commission had authority under the statute to exempt Enron on this basis, this state of affairs is Enron's doing. Enron chose to file three PUHCA exemption applications after its bankruptcy, despite the fact that it was aware that the Commission might deny them all, which the Commission did on December 29, 2003. (See, Opinion of the Commission in Admin. Proc. File No. 3-10909.) In any event, Enron has been well aware since the Initial Decision denying all its exemption applications was issued in that proceeding on February 6, 2003, that there was a strong possibility that its requested PUHCA exemptions would be denied by the Commission as well.

As the Commission correctly found in its very recent Enron opinion, the statute does not permit the Securities and Exchange Commission to abdicate its jurisdiction under PUHCA simply because the parties, including the state commission, may prefer a different forum in a bankruptcy proceeding. As the Commission observed (opinion at note 73): "[PUHCA] prescribes additional Commission oversight when holding companies required to register file for bankruptcy," citing sections 11(f) and (g) of PUHCA, 15 U.S.C. §§ 79k(f) and (g)). These provisions are important and necessary to protect the interests of utility investors, consumers and the public interest, not merely the interests of creditors, which are the focus of federal bankruptcy law.

As a recent example of the differing concerns of a bankruptcy court and a utility regulatory body, two of the five commissioners of the California Public Utility Commission have appealed the bankruptcy judge's order regarding Pacific Gas & Electric (PG&E) on the grounds that they believe the bankruptcy judge's order takes away important regulatory authority from the PUC. (Attachment A.)

As another example, the Montana Public Service Commission (MPSC) has been reduced to seeking funds so that it can participate as just one more intervenor in the bankruptcy proceeding of Northwestern Corp, a South Dakota utility that bought the remains of the ninety-year old Montana Power Company. (See Attachment B.) The nearly century-old Montana utility was divided up and its power plants sold off to out-of-state power suppliers after Montana implemented state electricity deregulation. The utility also acquired a telecom company, Touch America, pursuant to 1996 amendments to PUHCA that subsequently went bankrupt. Montana Power Company's transmission and distribution assets were sold to Northwestern Corp, which thereafter also declared bankruptcy because of its failed telecom investments. This was all made possible by partial repeals of PUHCA enacted by Congress in 1992 and 1996. CBS's "Sixty Minutes" feature, "Who Killed Montana Power Company?," blamed investment banks for the collapse of the 90-year-old utility. However, the banks were merely instruments for accomplishing the asset sales of "exempt wholesale generators" created by new section 32 of PUHCA in 1992, and the acquisition of "exempt telecommunications companies," created by new section 34 of PUHCA in 1996.

In short, recent experience makes it clear that PUHCA's enactors were correct in anticipating that the bankruptcy of utility holding companies would require special protections for utility consumers, investors and the public interest, not just for the interests of creditors. Otherwise, utility holding companies could, for example, use bankruptcies as a tool to rid themselves of unwanted state or federal jurisdiction, as the case might be, by obtaining permission from the bankruptcy judge to restructure and pay off creditors, despite the views of the regulators, or take other actions inimical to the public interest. The Oregon utility consumers and the investors in Portland General Electric cannot be denied these statutory protections simply because the Oregon PUC believes that it has Enron's sale of Portland General under control. As this Commission has properly concluded, although one of the chief goals of the Holding Company Act is to support effective state utility regulation, the statute does not permit the Securities and Exchange Commission simply to defer to state commissions regarding matters subject to this Commission's jurisdiction under PUHCA. (Enron opinion at n.74).

Finally, in evaluating the Enron financial debacle, it must be observed that much of the harm that Enron did was made possible at least in part by the exemptions from PUHCA regulation or "no-action" treatment that Enron received over the years. First, there was the section 3(a)(1) exemption that Enron enjoyed by rule and, later, the section 3(a)(3) and 3(a)(5) exemptions that Enron achieved by simply filing an application, up until the time the Commission found Enron was not entitled to them. In addition, Enron was the first company, as early as 1994, to receive a staff "no-action" letter to become a "power marketer" unregulated by PUHCA because it owned contracts for the sale of electricity. As the Commission correctly points out in its recent opinion denying Enron's section 3(a)(1), 3(a)(3) and 3(a)(5) exemption requests, a "no-action" letter does not necessarily represent the views of the Commission, does not have the force or law, and indeed is only a staff determination not to recommend enforcement action. (Opinion at note 50.) Nonetheless, Enron was able to run its vast power marketer operations without coming under PUHCA because of the no-action letter.

Enron also obtained no-action letters from the SEC staff for various other businesses, including one to provide utility services to a military facility without coming under the Holding Company Act (Enron Federal Solutions, Inc., 1999), and one for Enron Capital Services to engage in financial activities outside of PUHCA regulation (1998).

In short, Enron's ability to engage in utility-type behaviors, while avoiding the investor and consumer safeguards and constraints of PUHCA, has played a not inconsiderable role in allowing Enron to engage in the activities that caused its very name to become an international by-word for corporate corruption. (Parmalat is already being dubbed "Enron parmigiana.") Public Citizen believes that much of the Enron financial debacle could not have occurred had Enron been required to comply with PUHCA, rather than operating under "automatic" exemptions by rule or under pending PUHCA exemption applications, which exempt the holding company until the Commission acts upon them, and "no-action" letters that allowed Enron continually to avoid the consumer and investor protections of the statute.


While it may be too late to undo the harm done by Enron's prior PUHCA exemptions and no-action letters, the Commission should grant Public Citizen intervention on a limited basis in these proceedings and should, for the reasons set forth above, promptly deny Enron's latest and obviously unwarranted application for exemption from PUHCA regulation under section 3(a)(4), and require Enron to register promptly under section 5 of PUHCA.

Respectfully submitted,

Lynn Hargis, attorney
Public Citizen, Inc.
215 Pennsylvania Ave. SE,
Washington, D.C. 2003

(202) 454-5183


1 See our website at www.citizen.org for a lighter treatment of Public Citizen's support for the statute, "PUHCA for Dummies."

2 Seligman, "The Transformation of Wall Street: A History of the Securities and Exchange Commission and Modern Corporate Finance," Northeastern University Press, 2nd edition, 1995, p. 127. See also, p. 247.



Modified: 02/06/2004