Oct. 23, 2003
Congress Must Save Electricity Consumer Protection Act in Energy Bill
Statement by Lynn Hargis, Attorney, Public Citizen’s Critical Mass Energy and Environment Program
Goldman Sachs, one of the world’s largest investment banks, announced this week that it is acquiring 26 distressed power plants, all of which are exempt from the Public Utility Holding Company Act (PUHCA). This purchase gives us a foretaste of the future massive consolidation of traditional utility ownership by investment banks, equipment suppliers, insurance companies, giant utility holding companies, oil companies and other conflicted interests if PUHCA is repealed as proposed in the energy bill pending before Congress.
PUHCA currently limits utility ownership to companies involved only in utility-related businesses, because of the long history of past abuses. In the early 1930s, 53 public utility holding companies went bankrupt because of rampant conflicts of interest between utilities and investment bankers that underwrote securities for and otherwise advised utility companies, and numerous other abuses by utility parent companies. Now, despite the well-documented history of abuse of investment bank and utility relationships, Congress is about to permit investment banks to not only sit on public utility boards, but to be able to own such public utilities outright. With new revelations about the major role banks such as Citigroup, J.P. Morgan Chase and Merrill Lynch played in the Enron scams, as documented in this week’s Fortune Magazine, Congress should abandon the call for repeal of PUHCA and instead focus on strengthening this vital act.
If PUHCA is repealed, deep-pocket companies such as investment banks will be able to corner the market on power plant ownership. As we saw in California and in several blackout situations, if there is a shortage of electricity, any supplier with a single megawatt of power can charge whatever it likes in the open market. If PUHCA is fully repealed, a handful of companies will be able to control the supply (or shortage) of all the megawatts in the United States, as in the 1920s and 1930s. Indeed, partial PUHCA repeals have already led to four utility holding company bankruptcies this year, and power plants are being sold at “fire sale” prices.
Congress must preserve this essential consumer and investor protection statute to save our nation from the massive utility bankruptcies – and high electricity and natural gas prices – that were commonplace prior to PUHCA’s enactment.
* Lynn Hargis is a former assistant general counsel for electric rates for the Federal Energy Regulatory Commission (FERC).