Public Utility Holding Company Act of 1935

Public Utility Holding Company Act of 1935

Encyclopedia

Tutorials

Encyclopedia

Dictionary

Directory

Email this to a friend Public_Utility_Holding_Company_Act_of_1935

Public Utility Holding Company Act of 1935

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 authorize 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.

One result of the act was the divestiture of utility owned electric streetcar companies, which were then acquired by oil and automobile companies and dismantled.

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. 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. 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.