[BETA] Fortnightly

It's a law that only a mother could love.

It's tough to write another word about repealing the Public Utility Holding Company Act (PUHCA), or the "35 Act," as it is also known, referring to its Depression-era origins. But like the Energizer bunny, this debate keeps on going and going.

It's almost 70 years later, and the issue has outlived several generations of utility executives, regulators, lawyers, bankers, academics, and a few magazine editors. Heck, it may outlive us all.

As far back as 1931-in our issue of Feb. 19-you can see the playing host to James C. Bonbright, the famed professor from Columbia University, as he sparred with the now-infamous president of Middle West Utilities Cos., Sam Insull, on the subject of holding companies in the utility industry.

But it's time that this long, storied debate comes to an end, as Congress in the coming weeks prepares to introduce PUHCA repeal as part of a national energy bill. Many of the old problems that PUHCA was designed to fix are no longer relevant today. And when supporters counter that PUHCA ought to survive into the 21st century, they fail to account for 20th century improvements in regulation that are already on the books.

Last fall, sources told me that a majority in Congress wanted PUHCA repeal, and disagreed only on how much added authority to give to FERC to regulate mergers as a . Those senators who opposed PUHCA repeal argued that PUHCA would have prevented the Enron collapse.

Yet the Securities and Exchange Commission (SEC) flatly has refuted this last-ditch assertion aimed at saving PUHCA. Sources at the SEC have advised me that the agency supported PUHCA repeal wholeheartedly:

"Repeal of the act would eliminate regulatory restrictions that prohibit utility holding companies from owning utilities in different parts of the country and that prevent non-utility businesses from acquiring regulated utilities," the SEC said.

"In particular, repeal of restriction of geographic scope and other businesses would remove the impediments … to capital flowing into the industry from sources outside."

Many financial experts say that had PUHCA been repealed earlier, utilities might have been able to develop more sizeable balance sheets to better withstand the economic downturn and credit risks, and might have diversified their risks, in general. Perhaps the SEC recognizes, like so many students of history, that greater consolidation would have benefited utilities as it did the U.S. banking industry.

Last year, Columbia University's Charles W. Calomiris, in an essay in the Cato Institute's magazine, described the consequences to banks from Depression-era deregulation:

Calomiris argues that geographic fragmentation and restrictions on banking activities tended to limit the diversification of loan risks: "Small, un-diversified banks tended to be riskier, leading to greater instability during economic downturns."

Many executives would argue that Calomiris has described the electric utility industry of today, not the banking industry of yesteryear.

Inside the Beltway: Some Raw Nerves

With its recent report on PUHCA, sporting the wishful subtitle, , the American Public Power Association seems to have touched a raw nerve in the boardrooms of investor-owned utilities.