WASHINGTON – Governmental Affairs Committee Ranking Member Joe Lieberman, D-Conn., Friday expressed gratification with a preliminary Securities and Exchange Commission judgment against Enron Corp. regarding the company’s effort to exempt itself from a long-standing law intended to prevent abuses by public utility holding companies. An administrative law judge at the SEC found Thursday that Enron did not qualify for an exemption from the 1935 Public Utilities Holding Company Act (PUHCA), as the company had claimed. The exemption effectively enabled the company to obtain higher rates from the electricity produced by its California wind farms.
“The judge’s ruling is a welcome one, although it took the SEC three years and a Congressional investigation to ensure that it followed through, three years in which Enron appears to have reaped tens of millions of dollars worth from overcharging consumers for its electricity,” Lieberman said. “I expect the full SEC to move quickly to review this ruling. And I expect the Federal Energy Regulatory Commission, which allowed Enron to use this exemption, to sell wind farm electricity at preferential rates without ever questioning the company’s claim to it and to immediately take its own look at Enron’s claim.”
In October 2002, Lieberman released a bipartisan report criticizing the SEC, as well as others charged with financial oversight of Enron, for failing to protect consumers and investors from corporate financial abuse. The report charged that Enron “investors were left defenseless,” in the wake of the corporation’s collapse in December 2001. That report contained a lengthy section on the PUHCA exemption. It concluded that Enron’s April 2000 application for exemption was badly mishandled both by the SEC, which is charged with enforcing PUHCA and FERC, which regulates electricity suppliers such as Enron. Enron claimed it was already exempt from the law but sought another waiver because, by merely filing a so-called “good faith” application, it could get additional regulatory benefits from FERC. Specifically, Enron was allowed to reap the economic benefits from the sale of higher priced electricity produced by its wind farms, which it could not have done without an exemption.
The SEC and FERC had each argued it was the other’s responsibility to evaluate if the application was made in good faith. As a result, no one reviewed Enron’s claim, allowing Enron to sell high-priced electricity for years.