Perception of Public Utility Act Off the Mark

Text“Investors Warming to Growth Utilities” (Dec. 3) reflects an unfortunate misunderstanding of how the Public Utility Holding Company Act of 1935 works.

The article incorrectly states that the PUHCA has for nearly 70 years “prohibited multi-state mergers of utilities.” The facts actually show that there are currently 28 multi-state utility holding companies registered under the PUHCA.

Rather than prohibit all multi-state utility mergers, the PUHCA regulates the conduct of multi-state parent or “holding” companies vis-a-vis their utility subsidiaries. The PUHCA provides this necessary regulation to prevent parent company abuses, because no single state can effectively regulate multi-state holding companies.

The investors you admire are jumping in now for one reason: They think the PUHCA is about to be repealed, and they want to use guaranteed, regulated utility revenues to finance more interesting (read: riskier) ventures, just as investors did in the roaring 1920s when they snapped up and consolidated utilities all over the country.

Those good old days led to 53 utility holding company bankruptcies and 16 more loan defaults from 1929 to 1936.

There has not been a single electric utility holding company bankruptcy since the PUHCA became effective.

Lobbyists have been trying to kill the PUHCA since 1935. Luckily for utility consumers, investors and the national economy, they have so far failed.

Lynn Hargis

Washington

The writer is a former assistant general counsel on electricity rates for the Federal Energy Regulatory Commission.