Dozens of Public Interest Organizations Urge Congress to Save Important Consumer Protection Act in Energy Bill

June 9, 2005

Dozens of Public Interest Organizations Urge Congress to Save Important Consumer Protection Act in Energy Bill

Consumers’ Reasonable Electric Bill Rates Depend on Strong Regulation of Utility Industry

WASHINGTON, D.C. – Seventy-six national and state public interest organizations today urged Congress to save the Public Utility Holding Company Act (PUHCA), which protects consumers from high prices and other abuses by electric utility and natural gas companies. In a letter to the U.S. Senate, the groups urged lawmakers to save PUHCA from repeal, which both the House and Senate energy bills are proposing to do.

In “exchange” for repealing this vital consumer protection statute, the Senate bill gives the Federal Energy Regulatory Commission (FERC) limited additional jurisdiction over mergers, but that will not help consumers.

“Giving FERC more merger authority is meaningless,” said Lynn Hargis, an attorney with Public Citizen. “FERC has no structural or geographic limitations for utility mergers, which is essential for regulating the size and scope of utility holding companies and preventing the kind of abuses that led to the enactment of PUHCA in 1935.”

The majority of the groups signed onto the letter are state-based organizations concerned that if PUHCA is repealed, their state regulators will have little or no ability to regulate huge interstate utilities. The current energy bill gives states and FERC the right to request a holding company’s books and records.

“But it is clearly impossible for a state, or even federal, utility commission, with its limited staff, to review, much less understand, the books and records of huge conglomerates like AIG, Goldman Sachs or ExxonMobil (Enron’s books and records are a recent example of what an overwhelming job that can be),” wrote the 76 groups. “And under utility deregulation, energy companies are demanding more and more confidentiality as they claim to be competitive and want to protect their ‘trade secrets’ as they deny states and the public access to crucial financial information.”

In anticipation of the repeal of PUHCA, a wave of utility mergers has already been announced, including one by Warren Buffett. His holding company, Berkshire Hathaway, has a subsidiary named MidAmerican Energy Holdings, which has announced a deal to buy gas and electricity utility PacifiCorp for $9.4 billion and merge it with its Iowa utility, MidAmerican. The resulting utility would control electric and gas utilities from the Pacific Ocean to the Great Lakes. This purchase would not be possible under PUHCA, which promotes local control and effective state regulation over public utilities by confining the utilities owned by any holding company to a “single integrated system” operating within “a single region” of the country.

“FERC is deregulating wholesale electric rates on the theory that there will be increasing competition among electric suppliers,” according to the letter. “This can hardly be the case if a handful of electric and natural gas holding companies can control the vast majority of the utilities in the United States.”

PUHCA also limits the investment of utility profits in unrelated business ventures, which prohibits expansion-minded executives from siphoning off utility company profits to engage in risky investment schemes that do nothing to improve service reliability or keep rates low. The current law also prohibits conglomerates from owning utilities unless they give up their other businesses. If PUHCA is repealed, oil companies, investment banks, insurance companies and construction firms such as Halliburton and others could own and exploit public utilities to benefit their other businesses.

Although investors like Buffett and Goldman Sachs have lobbied heavily for the repeal of PUHCA, claiming that the law is “outdated” and hinders investment in utility infrastructure, “exactly the opposite is true,” the groups told Congress, “because the credit ratings of PUHCA-regulated holding companies are better than those of unregulated companies.” They cited reports issued in 2004 by Standard & Poor’s and Fitch stating that PUHCA regulation improves the credit ratings of PUHCA-regulated holding companies, thereby promoting investment in such companies by those seeking less risky investments.

The recent Enron debacle resulted from abuses made possible by the 1992 repeal of portions of PUHCA and other exemptions from PUHCA that Enron obtained. Prior to PUHCA’s enactment, 53 utility holding companies that had made risky investments went bankrupt after the banks called in their loans during the Great Depression. 

“No PUHCA-regulated electric utility holding company has ever gone bankrupt,” said Hargis.   “Yet, the Senate bill does not propose to give FERC any of the authority found in PUHCA over the financial dealings of utility holding companies, leaving consumers in the dark over their electric rates.”

“We’re in a vicious cycle of repeating history if we allow PUHCA to be repealed,” said Wenonah Hauter, director of Public Citizen’s energy program.  “Enron-style abuse in the 1920s was the very reason that this consumer protection act was created.  Now, 70 years later, another crisis occurs because of corrupt energy companies, and the response of some members of Congress is to repeal this act.  Congress should be strengthening PUHCA, not trying to kill it.”

To read the letter, click here.

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