Energy Policy Act of 2005

• FERC gets more power -- The Federal Energy Regulatory Commission (FERC) will exercise jurisdiction over generation mergers, the new reliability organization, public power activities that affect markets, transmission siting and it will expand its enforcement powers over markets.

• Repeal of PUHCA-- Effective February 2006, the much maligned Public Utility Holding Company Act (PUHCA) will expire, and the Securities Exchange Commission (SEC) will cease to pretend that it enforces that law. – Merger approval will no longer require physical contiguity and non-

utilities will no longer face the possibility that they will have to sell off non-utility properties if they acquire utility assets. The industry dearly wanted repeal of PUHCA. No doubt, investment bankers and private deal makers and money managers wanted it, too, because it increases their ability to do deals.

– Regulators, on the other hand, fear that the end of PUHCA will mean less protection for consumers against deals that damage the regulated utility. Credit ratings agencies and bond holders fear an increase in mergers and activities that will endanger credit ratings. Some skeptical equity holders worry that repeal will open the doors to a host of half baked mergers and diversification activities, of the sort that the industry has embraced again and again. Watch this one carefully.

• Mandatory electric reliability-- The bill authorizes the creation of an electric reliability organization (ERO) that will have power to mandate reliability rules. Present reliability rules work on a voluntary basis. FERC will oversee the new organization, which could evolve from the existing North American Electric Reliability Council (NERC), which, incidentally, has new management on the top. (The new law assumes that mandating rules assures that the lights stay on. One might think that Katrina and Rita would have changed that notion, even if the August 2003 black out did not.)

• Plenty of money for assorted causes-- The law reduces the tax depreciation lives of equipment for electric transmission, natural gas distribution and air pollution control on coal-fired generators. It provides renewable tax credits for “incremental hydro and Indian coal” and other renewables (different renewables get different credits), plus credits for a small number of coal technologies, plus tax exempt bonds for renewables, plus a tax credit for research at a consortium and some other stuff. (Note that everyone plays the old game. Congress, after prompting from lobbyists, knows best: what type of plant and equipment deserves a boost, what type of technology deserves help, even what type of R&D organization does it best.)

• The Rudden Energy Strategies Report , October 17, 2005