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Public Utility Holding Company Act
The Case Against Stand-alone Repeal of Public
Utility Holding Company Act
If you favor free, fair and open competition over
state sanctioned gas and electric utility monopolies, then
repealing the Public Utility Holding Company Act of 1935 (PUHCA)
without additional comprehensive utility reform will only leave
monopoly markets in place while removing the restrictions on those
monopolies. Thousands of small businesses that compete with the
affiliates of these holding companies, largely in the services area
such as heating, ventilating, air conditioning and refrigeration
contractors, will be jeopardized. Until true competition develops,
these monopolies will continue to pursue customers traditionally
served by America’s Main Street businesses.
ACCA doesn’t oppose repeal of PUHCA, for we agree
it needs updating to reflect today’s energy market and no longer
works as it was intended, but it’s the "only game in town." We will
only support repeal if it includes mechanisms to monitor market
power abuses among merged utilities, prevents cross-subsidization
and preserves fair competition. The bill introduced by Senator
Richard Shelby (R-AL), S. 206, does not. Contrary to the arguments
of proponents, repealing PUHCA now is not the magic bullet to solve
the energy crisis in the West and some other states.
Background
Under PUHCA, a corporation is considered a
holding company if it owns 10% or more of an electric or gas
utility. If it does, it must register with the Securities and
Exchange Commission (SEC) and provide detailed financial records.
The SEC must approve a long list of activities in which the
registered holding company is involved, including issuing
securities, acquiring new assets and transferring money between the
holding company and its subsidiaries. Additionally, these companies
are prohibited from owning non-utility businesses. PUHCA requires
these companies to confine their business to the operation of an
integrated utility system.
Proponents of repeal claim the Act is obsolete
and that the Federal Energy Regulatory Commission (FERC) and state
regulatory commissions provide adequate regulatory control. They
feel PUHCA has become a costly and redundant form of regulation.
However, if PUHCA has become such a barrier to
investment in generation and transmission as repeal supporters
claim, why has the number of registered holding companies coming
under its supervision nearly doubled to 30 over the past two years?
Obviously, it has not stood in the way of mergers and
consolidations.
Ironically, repealing PUHCA could actually impede
competition as it would lift restrictions to the barriers place on
utility mergers. As SEC Commissioner Hunt testified, this would
ultimately lead to greater concentration in the industry, rather
than opening it to more competition. Stand-alone PUHCA repeal would
expose consumers to risks associated with risky financial
transactions without sharing in any benefits of successful
diversification. Captive retail services can become the poor
stepsister of the holding company, requiring ratepayers funds to
maintain it. Competent personnel can be assigned to affiliates but
still remain on the utility payroll. Cross-subsidization robs
consumers and leads to unfair competition which, in turn, leads to
higher costs for the consumer. Consumer groups, large industrial
customers, environmental organizations, public power utilities,
labor and small businesses understand these dangers and universally
oppose stand-alone PUHCA repeal.
The Solution
As previously mentioned, if Congress is to
consider S. 206, it must be amended in a comprehensive context that
monitors market power abuses, prevents cross-subsidization and
preserves fair competition.
Outlook
As energy legislation is shaped this year, there
is an opportunity to once and forever provide a comprehensive
approach to establishing competitive markets which will lead to
market conditions that will meet the challenge of our current
energy shortages. We are hopeful that Congress recognizes this
opportunity and acts accordingly.
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