U.S. Investment in Foreign Utilities under the Public Utility Holding Company Act of 1935 and the Energy Policy Act of 1992

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INTRODUCTION

On October 24, 1992, President Bush signed into law the Energy Policy Act of 1992,(1) amending the Public Utility Holding Company Act of 1935 (PUHCA).(2) In particular, section 715 of the new law amends PUHCA to facilitate and promote the expansion and increase of U.S. investment in foreign electric and gas utility companies.(3)

The amendment of PUHCA in this regard was precipitated by an explosion of opportunities for U.S. investment in foreign utilities in 1992.(4) For example, in March 1992, the government of Argentina announced the privatization of several state-owned utilities.(5) In August 1992, the government of Brazil similarly announced the privatization of its state-owned electric utility company.(6) To promote the development of additional electric power facilities, Columbia, Costa Rica, and Honduras all legislated the removal of legal barriers to private and foreign investment in their electric utilities.(7)

As in Latin America, in Eastern Europe several nations initiated the privatization of their state-owned electric and gas utility companies in 1991 and 1992.(8) Poland, for example, is expected to privatize thirty-four electric power companies.(9)

Finally, numerous additional opportunities for U.S. investment in foreign utilities arose in 1992 in the Far and Near East and in the Pacific. The need for electric power facilities in China is expected to result in the removal of legal barriers to private and foreign investment.(10) The governments of Malaysia and Pakistan both have decided to proceed with privatization of their state-owned electric utility companies.(11) The governments of South Korea and Thailand announced their promotion and development of new electric power facilities through foreign investment.(12) The governments of Australia and New Zealand also decided to privatize their electric utility companies.(13)

PUHCA, which is administered by the U.S. Securities and Exchange Commission (SEC), regulates the acquisition and ownership by U.S. companies of electric and gas public utility companies. A public utility holding company is basically a company that owns a U.S. or foreign electric or gas utility company.(14) In the absence of an exemption--several of which are provided by PUHCA--A public utility holding company, as well as its public utility and non-utility subsidiaries, is subject under PUHCA to a complex maze of legal requirements. It was argued in 1992 that those legal requirements would pose obstacles to U.S. investment in foreign utilities.(15)

During the same time the Energy Policy Act was under consideration in Congress, the SEC granted several landmark exemptions from the legal requirements of PUHCA to U.S. public utility holding companies wishing to invest in foreign utilities. The exemptions suggested a recognition of unprecedented opportunities for U.S. investment but nonetheless require the resolution of several legal issues unencountered in the administration of PUHCA by the SEC in almost sixty years. The exemptions establish a precedent that is certain to dictate to a significant extent the future course of U.S. investment in foreign public utility companies.

This article describes and discusses the development of the new legal regime under PUHCA for U.S. investment in foreign utilities. Part I provides an overview of the complex regulatory framework PUHCA imposes on public utility holding companies and addresses the several exemptions from those legal requirements provided by PUHCA. Part II discusses the recent exemptions granted by the SEC to public utility holding companies investing in foreign utilities. Part III describes the recent amendment to PUHCA intended to facilitate and promote an expansion in U.S. investment in foreign utilities and discusses the development of the National Energy Strategy and the legislation fashioned to implement it. It also discusses the adoption of the Foreign Investment Amendment. …