Congress flips a big switch
Scrutiny needed as electric firms can now easily merge
Get ready to start reading the fine print on your electric bill. And especially keep track of who owns the utility. Starting this week, the nation's roughly 220 investor-owned electric utilities can be more easily bought and sold, like properties in a game of Monopoly.Skip to next paragraph
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Congress last week repealed the venerable but little known Public Utility Holding Company Act, a Depression-era safeguard designed to prevent market manipulation by supersized electric utility companies. Once a keystone of the New Deal, the 1935 law was thrown onto the ash-heap of history as just one of many measures in a comprehensive energy bill soon to be signed by President Bush.
Known as PUHCA (or "pooh-ka"), the act was once seen as critical to keeping moguls from creating complex holding companies that could funnel the safe, steady cash flow of utilities into more speculative and rewarding - or dubious and financially disastrous - ventures, as actually happened during the 1920s.
And it did that, effectively preventing megamergers and creation of gargantuan monopolies spanning geographic regions. PUCHA also made it next to impossible for non-energy companies - whether purveyors of hamburgers or Hummers - to purchase a utility.
But Capitol Hill legislators decided last week that PUCHA was an antique, a stumbling block for a nation that's been pushing to find more efficiencies and cost savings in many regulated industries, from airlines to phone companies.
Warren Buffet, that investor of all investors, and one of the world's richest men, is one of those reported to see the utility industry as ripe for picking. Even while PUHCA was in force, a division of his Berkshire Hathaway empire was hot in pursuit of PacifiCorp, an Oregon-based utility.
Perhaps PUHCA really was the dinosaur that Wall Street, the utility industry, and their lobbyists claimed. In that case, perhaps more genuine competition, lower electric rates, and better service - the mantra constantly promised by limited deregulation - will emerge to salve those who endured the great Northeast blackout of 2003 and the California electricity supply mess of 2000-01.
Down the road it seems clear PUHCA's repeal will improve the industry's access to capital, remove awkward geographic limits, and allow non-energy companies to dive into the mix. Overseas power companies will also now be able to snap up US utilities, just as many municipal water companies are now foreign owned.
And giants like ExxonMobil or General Electric could easily find it in their interest to purchase a utility or two. Perhaps owning a power company would open the door for renewed sales of nuclear power plants, for instance.
A PUHCA-less world leaves states and, to a limited degree, the Federal Energy Regulatory Commission (FERC), with a demanding task to make sure residential consumers get a fair shake.
To that end, Congress has given both the states and FERC more review power over utility mergers than before. Even so, that power is far less broad than permitted under PUHCA. For instance, neither FERC nor states will be permitted to require certain records to be kept, as was the case under PUHCA. States will need to beef up oversight and the their utility commission staffing in order to better probe the electric empires and figure out the mind-boggling accounting that will doubtless emerge.
FERC must become more diligent in questioning industry mergers (it hasn't rejected one in a decade). When states' attorneys general recently requested a hearing by FERC on whether consumers might be harmed by the nation's largest proposed utility merger of Newark-based Public Service Enterprise Group and Chicago-based Exelon Corporation, FERC declined. It approved the merger in July without a hearing.
As regional utilities are snapped up and this trillion-dollar industry consolidates, consumers need to be more vigilant in watching how their electric utility operates and how well their state keeps an eye on it. Any savings from creating larger firms must be passed onto customers, rather creating fatter profits for utility owners.
Only then can Americans cheerfully celebrate PUHCA's departure as much as the industry has.