[BETA] Fortnightly

On a purely intellectual level, it is difficult to justify the Public Utility Holding Company Act of 1935 (PUHCA). Sixty years after passage, PUHCA has become an anachronism (em a fact well articulated in comments filed in response to the Concept Release on the modernization of the Act issued last November by the Securities and Exchange Commission (SEC).1 More recently, the SEC's Division of Investment Management actually recommended a conditional repeal (see sidebar). Changes have occurred in financial markets, accounting, and securities ratings, and in vastly improved regulation by states and the Federal Energy Regulatory Commission (FERC). The issue is not whether the Act has some "utility." Rather, is the industry so unique or its consumers or investors so in need that the Act should be retained?

Today, many sides argue both for and against repeal of PUHCA. Risks abound, including court challenges,2 changes in the composition of Congress (if the Democrats regain one or both houses), or a change in SEC attitude at the commission or staff level. But while I believe the odds lie against full repeal, a reinterpretation of the Act is in full swing. Since PUHCA arrived as part of the "New Deal,"3 I'll refer to this new effort as the "re-deal."

Why the Odds Lie Against Repeal ¬

That the odds lie against repeal relates more to the process than the subject. First, the new Republican Congress has mapped out a big agenda (em one that does not currently include PUHCA. Second, passage of legislation favorable to a single industry generally requires a consensus (em a condition lacking among electric utilities. Third, most legislation simply never passes.

On the other hand, the fashion has swung toward deregulation, both in Congress and the Administration. A certain determination to make changes has surfaced (em one that has not been seen perhaps since the New Deal itself. These trends might carry a repeal bill all the way to passage. Nonetheless, the odds seem to favor the opposition.

So who makes up the opposition? What do they want?

The opposition comes principally from the public power sector, led by the American Public Power Association (APPA) and the National Rural Electric Cooperative Association (NRECA) (em the "Coalition," which also includes some environmental and consumer groups, as well as some state consumer counsel. The Coalition is joined by various other groups, such as the National Association of Regulatory Utility Commissioners (NARUC), certain populists within Congress (such as Rep. John Dingell (D-MI), whose father helped pass PUHCA),4 and even some investor-owned utilities (IOUs), especially the smaller ones who fear that repeal could leave them exposed to corporate takeovers.

Writing from a bias that comes largely from representing IOUs, but having some reputation for a relatively academic and dispassionate view of this subject, I submit that the opponents make an unconvincing case. The public power Coalition, it appears, is against freeing the IOUs from the shackles of PUHCA because they fear the competition. However, they do not give that as their reason. Rather, they argue that real competition does not yet exist, since regulation, as