How do American electric utilities differ from water companies, telephone companies, airlines, insurance firms, food processors, newspapers, steel mills, and other industries in the United States? "They produce electricity and the others don't," you answer. Maybe, but the others can produce electricity, too, if they want to. The correct answer is: Thanks to a law passed 60 years ago to protect a different industry from the depredations of now long-dead financial manipulators, no business may buy 10 percent or more of an electric utility's shares without submitting its entire operation to the jurisdiction of the Securities and Exchange Commission (SEC), and risking a demand to divest itself of all nonutility operations. Let's think about that for a minute.
The framers of the Public Utility Holding Company Act (PUHCA), the law in question, had their reasons for that restriction of ownership. Financial geniuses, in the days before the founding of the SEC and the development of sophisticated regulatory tools, developed many ways to milk the utilities, defraud shareholders and creditors, and evade regulation. And these people succeeded in their efforts even though they owned a small percentage of the capital of the utility group they controlled. Today, those restrictions seem superfluous, given the hawklike stance of the utility regulatory agencies as well as the protective rules enforced by the SEC and the stock exchanges, and the audits of accountants that get sued when they don't pay attention.