The Public Utility Holding Company Act of 1935 (PUHCA) was a law that was passed by the United States Congress to facilitate regulation of electric utilities, by either limiting their operations to a single state, and thus subjecting them to effective state regulation, or forcing divestitures so that each became a single integrated system serving a limited geographic area. Another purpose of PUHCA was to keep utility holding companies engaged in regulated businesses from engaging in unregulated businesses. PUHCA required that Securities and Exchange Commission (SEC) approval be obtained by a holding company prior to engaging in a non-utility business and that such businesses be kept separate from the regulated business(es). It also authorized the SEC to flatten the corporate structure of utilities to remove unnecessary corporate layers. Individual operating utility companies could centralize certain business operations into central Service Companies, but all Service Companies would be subject to SEC and Federal Energy Regulatory Commission regulation. As a result, when a state utility commission regulated a utility located in a particular state, the rate payers of that state would pay only the share of common Service Company expenses allocated to it under SEC-approved formulas. This would prevent a Holding Company from double-recovery of its expenses when it operates in more than one state.

PUHCA was one of a number of trust-busting and securities regulation initiatives that were enacted in response to the Wall Street Crash of 1929 and ensuing Great Depression, including the collapse of Samuel Insull's public utility holding companies. By 1932, the eight largest utility holding companies controlled 73 percent of the investor-owned electric industry.^[1] Their complex, highly-leveraged, corporate structures were very difficult for individual states to regulate.

An important PUHCA provision prohibited sales of goods or services between Holding Company affiliates at a profit. These rules prevented the utilities from increasing their cost-based regulated rates by artificially marking-up the prices paid by the utility operating companies above what the central purchasing affiliate paid. One noticeable impact of this provision was on electric trolleys. Most electric streetcar companies were private companies owned by electric utility holding companies. The trolleys were generally unregulated, while the electric utilities were regulated. The electric utility company would sell electricity to the trolley affiliate company and artificially mark up the price in order to affect the accounting costs of the regulated utility. This allowed the utility company to subsidize the trolley system while at the same time being able to raise their electric rates for other customers. The result of the provision was the divestiture of utility owned electric streetcar companies, which were then acquired by various parties, including in most major cities oil and automobile companies, and, being no longer subsidized, dismantled.

The utility industry and would-be owners of utilities lobbied Congress heavily to repeal PUHCA, claiming that it was outdated. On August 8, 2005, the Energy Policy Act of 2005 passed both houses of Congress and was signed into law, repealing PUHCA, despite consumer, environmental, union and credit rating agency objections. The repeal became effective on February 8, 2006.

It was replaced by a much weaker set of laws called the "Public Utility Holding Company Act of 2005" which gave the Federal Energy Regulatory Commission (FERC) a limited role in allocating the costs of multi-state electric utility holding companies to individual operating subsidiaries. 42 U.S.C. § 16451 et seq. The 2005 Act had many provisions which applied to just electric subsidiary to the exclusion of natural gas subsidiaries of Holding Companies. On December 8, 2005, FERC recommended that Congress amend the 2005 Act to give FERC (1) cost allocation authority over gas subsidiaries, and (2) greater enforcement authority over gas subsidiaries,^[2] but Congress has not acted on FERC's request.

[edit] External links

• Public Utility Holding Company Act of 1935: 1935 – 1992 by the United States Department of Energy
• Current Registered Holding Companies Under the Public Utility Holding Company Act of 1935 at the SEC website
• PUHCA @ U.S. Code
• PUHCA for Dummies
• "PUCHA Repeal Thwarts Competition and Puts Consumers at Risk", Kanner, Marty, The Washington Times
• "Electricity Restructuring Background: Public Utility Holding Company Act of 1935 (PUHCA)"
• "Discarding PUHCA"
• PUHCA at Union of Concerned Scientists
• Article about PUHCA at Public Citizen

[edit] References

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