ICI Comments on Public Utility Legislation Requirements

Washington, DC, October 21, 2005 - SEC-registered investment companies and investment advisers that make passive investments in public utility companies or public utility holding companies should be exempt from certain requirements of the Public Utility Holding Company Act because they will not influence utility rates, according to an Institute comment letter.

Background
In September, President Bush signed into law the Energy Policy Act of 2005. The Energy Policy Act enacts the Public Utility Holding Company Act of 2005 (PUHCA), which transfers regulatory authority over public utility holding companies from the SEC to the Federal Energy Regulatory Commission (FERC) and state agencies. The 2005 Act will take effect February 8, 2006.

The FERC recently proposed rules to implement the new legislation. PUHCA and the proposed rules potentially subject SEC-registered investment companies and investment advisers to regulation as public utility holding companies. For example, a fund or adviser that owned, with power to vote, 10 percent or more of the outstanding voting securities of a public utility or public utility holding company would itself be considered a public utility holding company. Also under the new legislation and proposed rules, holding companies will be subject to requirements to maintain and make available to FERC certain books and records deemed relevant to the costs incurred by a public utility or natural gas company and necessary or appropriate to protect utility customers with respect to jurisdictional rates.

ICI Position
In a recent comment letter, the Institute recommends that FERC exempt SEC-registered investment companies and investment advisers that make passive investments in utility companies from certain of PUHCA's provisions. ICI states that it is highly unlikely that the share holdings of these passive institutional investors would have any effect on utility rates. To limit the exemption to passive investments, the Institute suggests that the FERC model the exemption on existing regulation, which justifies an exemption from the federal books and records access requirements, because certain passive institutional investors do not change or influence control of the issuer.