To the President of the Senate and the On June 20, 1977, we issued a report entitled, "The Force Of The Public Utility Holding Company Act Has Been Greatly Reduced By Changes In The Securities And Exchange Commission's Enforcement Policies" (FGMSD-77-35). The report raised questions concerning the narrowness of the Commission's administration of a statute which the Congress had intended to be wide ranging and pervasive. Our report was issued without Commission comments because the Commission was unable to prepare a response within the 30 days we allowed. On June 30, 1977, the Commission issued comments--comments which rejected all of our report's recommendations. Although lengthy, the comments were not, in our opinion, persuasive and do not justify changes in our recommendations. Our June report recognized that the Commission accomplished much in the early years of regulation in reducing the size and complexity of utility holding companies. The Commission's administration of the act, however, changed over the years. Currently, the Commission's administration of the act is too narrow and applies to too small a segment of the utility industry to fulfill all the act's objectives. In our report we estimated that about 100 utility companies are classified as public utility holding companies as defined by the act. At the time of our examination all but 14 had been granted exemptions from regulation. As noted in our report, the Commission has little or no contact with the exempt companies and does not keep current records on the activities of these companies. In the report we questioned whether the Commission's surveillance of the 14 regulated companies was adequate. The Commission was not conducting field investigations to assure that the companies were complying with the act's constraints on controlling influences, political payments, and intercompany transactions which could lead to holding company abuse. In its response, the Commission stated that it had carefully and vigorously supervised the activities of regulated holding companies. We reported that in granting regulatory exemptions, the Commission had relied too much on the geographic location of companies' retail utility services and had not considered the possible detriment to the public interest. Many exempt companies (1) were comparable in size and function to the companies which the Commission continues to regulate, (2) conducted both gas and electric utility operations, and (3) engaged in nonutility businesses of the type the act sought to prevent, such as farming, travel agencies, and real estate. Consequently, the public, investors, and consumers are not provided the protection from holding company abuses intended by the act. The Commission commented that it saw no need for changing its interpretation of the act's exemption provisions. We reported that both regulated and exempt companies had made costly high-risk investments in fuel and fuelrelated businesses which were outside their primary area of utility expertise. The report noted that the Commission relied almost entirely on company-submitted data, which in our opinion were inadequate for approving the financing of such businesses. We also reported that the Commission had little information on how the operation of such businesses by utility companies affected the interests of the public, investors, and consumers. The Commission stated in its comments that the companies' proposals for financing had received special review attention and that it had required full explanations regarding the companies' expected use of fuel and the reasons why other fuel sources were unavailable. The Commission held that its reduced level of regulation represented an accommodation to the substantial achievement of the act's objectives. It stated that Commission policy in administering the act has consistently given full attention to the congressional interest of preventing utility holding company abuses. We still believe, as we recommended in our previous report, that a study of developments in the gas and electric utility industry is needed to assess the continued usefulness of the act. We therefore recommend that the Congress direct the Commission to (1) make the study of developments in the gas and electric |