When 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Today, PUHCA was repealed.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.
