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Farewell, PUHCA
Jamais Cascio, 8 Aug 05

lightbulb.gifWhen George W. Bush signed the Energy Policy Act of 2005 today, what may be the most important part of the bill received scant attention. Neither the New York Times nor the Washington Post mentioned it; in fact, it's noted by very few of the Google News sources talking about the Energy Policy Act. Yet it's this section of the Act, far more than subsidies for oil exploration or a few bones tossed to renewables, will likely have by far the greatest impact on the daily lives of Americans for years to come.

Today, PUHCA was repealed.

PUHCA -- the Public Utilities Holding Company Act -- was a part of the New Deal legislation, passed in 1935 in response to corruption and scandals in the energy companies of the time. PUHCA was meant to protect consumers against business dealings that could threaten the reliability of the energy utilities. As of today, some 70 years after PUHCA was passed, those protections are gone.

In brief, PUHCA enabled extensive regulation of the size, spread, business type and finances of the holding companies that owned and operated the energy utilities. Much of PUHCA focused on mergers and acquisitions. Any mergers -- such as the recently-announced Duke-Cynergy combo -- would be subject to rules on the location of the merging companies, the diversity of holdings the post-merger entity could have, and the amount of debt the resulting company could hold; such mergers would also be subject to close scrutiny by the Securities Exchange Commission.

The goal of PUHCA was to prevent the kinds of cross-dealing and subsidiary "looting" that became increasingly commonplace among owners of utilities in the early days of the Great Depression. According to the excellent 2003 document from Public Citizen, "PUHCA For Dummies: An Electricity Blackout and Energy Bill Primer" (PDF):

PUHCA was enacted because huge holding companies were using secure utility revenues to finance and guarantee other, riskier business ventures around the world, and 53 utility holding companies went bankrupt from 1929 to 1936 after the banks called in their loans.

Under PUHCA, any companies that seek to become owners of public utilities have to divest themselves of their non-utility holdings. PUHCA rules were designed to make it very, very difficult for energy holding companies to get involved in risky businesses. As a result, not one PUHCA-regulated utility holding company has gone bankrupt since 1935.

The section of the 2005 Energy Policy Act repealing PUHCA is a tiny, almost invisible portion of the massive document. But as a result of the simple line ("The Public Utility Holding Company Act of 1935 (15 U.S.C. 79 et seq.) is repealed."), there are now no restrictions on who can buy public utilities. Holding companies will no longer be required to divest non-utility businesses; geographic limitations or restrictions on number of holdings are similarly gone. Even the SEC has been taken out of the process, replaced by a much-scaled-down review by the Federal Energy Regulations Commission (FERC).

In short, the repeal of PUHCA means that public utility companies are now fair game for buyouts and consolidation. One likely scenario is that we see a process of merger and acquisition in the energy utility market akin to that in the telecommunications arena. Moreover, as major global energy companies such as ExxonMobil and ChevronTexaco have been at the forefront of efforts to get PUHCA repealed, it's highly likely that they -- along with other energy majors -- will look to spend some of their recent windfall profits on utility acquisition, buying not just the power supply businesses, but the customer information. But it need not be an oil firm buying up utilities; billionaire investors and non-energy industry companies could just as easily buy up local utilities.

What might Wal*Mart Power & Light look like? or Microsoft Edison? Or General Electric Gas & Electric (GEG&E)?

Supporters of PUHCA repeal argue (PDF) that the 1935 regulations were hurting the ability of utilities to provide the benefits that could arise from significant investments and economies of scale. Indeed, companies comprising what are now dozens or hundreds of small, local utilities would have the resources to construct new power lines and generation facilities otherwise out of the reach of PUHCA-era utilities. Opponents -- and there were many, even if they didn't get much attention -- call PUHCA repeal a catalyst for "exponential Enrons," and worry that consolidation and buyout by multinational concerns would put utilities beyond the reach of state and even federal regulators.

Ironically, both perspectives could end up being true. It is entirely possible that the PUHCA repeal results in greater overall investment in power transmission and production, even while making corruption and resistance to regulation more likely.

Given that PUHCA is gone as of today, and given that only a string of major scandals -- and, most likely, a top-to-bottom change in Washington, D.C. -- would result in something approaching a return of PUHCA-style regulations, the obvious next question is how (or whether) this situation can be used in a more worldchanging way.

One opportunity that springs to mind is to recognize that some of the changes to the national electricity grid that would have the most positive results down the road would require a fairly significant investment. Smart grids, smart home meters, and large-scale wind, wave and solar installations would need large sums of money, and the PUHCA repeal could result in a scenario in which these changes become more likely. More to the point, the utility owners would have a harder time arguing poverty if facing aggressive state-level action demanding such improvements.

Another opportunity, less likely but still worth considering, comes from the recognition that the removal of restrictions on who can own public utilities could make it easier for citizen groups, non-profits and perhaps even municipalities to buy out local utilities and run them in the public interest. I would be highly amused (and very happy) to see a legislative act intended as a gift to big companies result in a greater number of publicly-owned utilities.

The greatest demand put on worldchangers -- and, while PUHCA only applied to the United States, the opportunity for outside-the-US investors to buy up US utilities means that Worldchanging readers in Europe, Japan and China aren't off the hook on this -- is increased vigilance. The activities of the new consolidated utility owners will need to be watched as closely as possible; this need for a "bright green panopticon" has just become all the greater.

PUHCA is gone; it's now up to us to make sure that its spirit lives on.

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Comments

Net metering is the crucial legal issue in terms of worldchanging energy. If you can get a fair price for putting energy back into the grid as well as using it, then there's a real incentive for home-based renewable. What is the future of net metering after PUHCA?

Another point is that the repeal of PUHCA is only one episode in the gradual rollback of New Deal legisation. The New Deal banking, insurance, and stock market regulatory reforms have been consistently replealed and superseded beginning with the Reagan administration and intensifying under Bush II. Most, if not all, of FDR's safeguards are gone and thus make conditions ripe for as much pain and suffering as the Great Depression. Add on war, terrrorism, the nuclear threat, global warming, oil peak... and we are in for one grand sleigh ride.

In many ways, solar is civil defense and a solar imagination may be the best offense as well.


Posted by: gmoke on 8 Aug 05

Hi:
Does anyone know how I get a hold of an author [in this case Jamais Cascio] for possible reprint permssion? And how do I get hold of those that run WorldChanging.com if I'm interested in reprinting other things. I publish a free (ad-supported and print-focused--for now anyhow) environmental journal in Vermont.: see www.greenlivingjournal.com for more details. [No, not a plug, our website is quite barebones, just a reference.]


Posted by: Marshall Glickman, Green Living on 9 Aug 05

Thanks for the fascinating post, Jamais. Does the repeal of PUHCA have any impact on the ability of the states to regulate utilities? After all, if they can now be extensively privately owned, and even can bid on and purchase non-utility private businesses, can they truly be called public utilities.

One thought on your "less likely but worth considering" idea of governments purchasing utilities: How about using eminent domain to take control of the wires and generators belonging to utilities. Now that the Supreme Court has loosened the definition of the public good in takings cases, this might qualify as economic development, and it might be an unintended good consequence of that otherwise wacky ruling.


Posted by: robert neuwirth on 9 Aug 05

Robert, that's a very sharp observation -- I wonder if any municipalities will pick up on that unconventional use of eminent domain.

As for the ability of states to regulate utilities, the analyses that I saw were mixed but generally not optimistic. The inter-state nature of the power business, especially after consolidation takes hold, may make it easier for the new big utilities to argue that they should only be subject to federal regulation (where they'll be essentially untouched).


Posted by: Jamais Cascio on 9 Aug 05

Municipal utilities are HATED by the industry. They provide a benchmark for the private "public" utilities and tend to spearhead programs that the privates eventually have to undertake themselves. The repeal of PUHCA will have utility companies salivating to pick up municipals.

Here in MA, the treatment of municipal utilities under "deregulation" was the issue in a lawsuit that held up the law for awhile. In ancient history, Dennis Kucinich was the Mayor of Cleveland (if memory serves) and the issue that got him booted out of office was his refusal to sell their municipal utility to pay off debts. As I recall, George Voinovich came in and sold that sucker off.


Posted by: gmoke on 9 Aug 05

this may be a naiive comment, but I think I can see some good in this. If BP is really insistent on going 'beyond petroleum', wouldn't this be one way of diversifying assets? I realize there is no guarantee that necessarily means diversifying into renewable energies etc, and not simply an excuse to create revenue and push petroleum based power sources. BP, even though it is only a small part of there overall activity as a company, is one of the world's largest producers of photovoltaics in the world


Posted by: travis on 9 Aug 05

Does anyone know how repeal of the PUHCA will affect B.C. Hydro, Manitoba Hydro, Ontario Hydro, or Hydro Quebec? These are very similar to such entities as TVA, Bonneville Power Administration, and seem to have been sucked into the NERC which was, apparently, formed by American Investor Owned Utilities as a consequence of the extensive blackout that started on August 14, 2003.

NERC is not to be confused with FERC, that much I know. Did the repeal of PUHCA result in the repeal of the law that established the FERC???


Posted by: Allan Dane on 9 Aug 05

Great. Sounds to me like a recipe for lots more Enrons.


Posted by: THAT on 10 Aug 05

Argh. A tiny, largely unnoticed change (Which I am sure the anti-PUHCA forces were counting on!) in national energy policy and suddenly things look grim for my local, public utility: Seattle City Light.

I wonder how this will pan out in the next few years locally, not really looking forward to it though.


Posted by: Pace Arko on 10 Aug 05



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