Giant Utility Merger Deemed Illegal by Securities and Exchange Commission Administrative Law Judge

May 3, 2005

Giant Utility Merger Deemed Illegal by Securities and Exchange Commission Administrative Law Judge

Statement by Lynn Hargis,* Attorney with Public Citizen’s Energy Program

Today’s decision by an administrative law judge at the Securities and Exchange Commission (SEC) that the largest utility merger in the United States occurred illegally because it failed to comply with the Public Utility Holding Company Act (PUHCA) is proof that this important consumer protection law remains as vital today as it was when it was enacted in 1935. It is this very law that protects consumers from high electricity rates, poor customer service and a loss of local control over public utilities.

PUHCA was designed to geographically limit the spread of utility holding companies to promote effective state utility regulation and prevent the widespread abuses by holding companies that were rampant prior to enactment of PUHCA. In recent years, utilities and other industries seeking to acquire public utilities have called for the repeal of PUHCA, claiming it is an antiquated law that no longer serves a purpose in today’s market.

Public Citizen has long claimed that this electricity law must remain in effect and be properly enforced to ensure that consumers are protected from excessive consolidation of utility ownership and resulting electricity price-gouging.

Although the merger between two giant utility holding companies, American Electric Power Company (AEP) and Central and Southwest Corporation (CSW), was consummated in 2000, a 2002 decision by the U.S. Court of Appeals for the District of Columbia sent back the SEC’s approval for further explanation as to how it complied with the provisions of PUHCA, which the SEC enforces. The court asked the SEC to explain how a group of utilities bordering on Canada (AEP) and a group of utilities bordering on Mexico (CSW) could be found to operate in a “single” region of the United States, as required by PUHCA. Administrative Law Judge Robert Mahony today found that they did not and denied the merger. 

On behalf of electricity and natural gas consumers everywhere, Public Citizen applauds the law judge’s decision to enforce this vital consumer protection law.

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*Lynn Hargis is a lawyer in this case on behalf of Public Citizen.  She was formerly the assistant general counsel for electric rates and corporate regulation at the Federal Energy Regulatory Commission.

To read a copy of the ruling, click here. 

To read Public Citizen’s original motion, click here.