Aug. 5, 2005 – If the electricity industry were left to its own devices, some day flicking on the kitchen light could send signals around the country, through a vast, borderless mega-utility. Now that Congress has repealed a major set of market regulations, say public interest groups, the future shock of a ubiquitous corporate power system is rapidly approaching.
Last week, the passage of the Energy Policy Act of 2005 extinguished the Public Utility Holding Company Act (PUHCA), landmark legislation that had established consumer protections against harmful business activities of utility umbrella corporations that control power suppliers.
The repeal, set to take effect in six months, was a victory for industry and conservative groups that have campaigned against PUHCA for years. However, according to consumer advocates, legislators have eliminated a key defense against a tide of market deregulation that has flooded communities with mergers, corporate crime and climbing energy rates.
Lynn Hargis, legal counsel with consumer advocacy and watchdog group Public Citizen, said PUHCAâ€™s repeal would lead to a "huge consolidation of economic power" as a shrinking number of firms hoard a growing share of the market. "Nobody would be able to regulate it, because it would just be too big and powerful," she said.
Enacted in 1935 to curb Depression-Era monopolies, PUHCA empowered the Securities and Exchange Commission to regulate the financial activities of federally registered gas and electric utility holding companies, which own utilities in more than one state, and to restrain large mergers across state lines or between industrial sectors. The act also contained provisions against anti-consumer practices, like charging predatory fees on local utilities or diverting utility profits toward non-utility investments.
Enron-style scandals are â€œexactly the type of thing this type of regulation was set up to prevent.â€ -- Robert Burns, National Regulatory Research Institute
PUHCAâ€™s repeal caps a history of regulatory rollbacks in the electricity industry, starting with the 1992 energy bill, which effectively deregulated the wholesale electricity market. A cascade of mergers followed, and between 1992 and 2000, according to the US Department of Energy, the share of the countryâ€™s power generation held by the ten largest investor-owned utilities grew from 36 percent to over 50 percent.
By 2003, seventeen states and the District of Columbia had opened local utility sectors to competition, permitting power suppliers to vie directly for a communityâ€™s electricity market.
Public interest groups say the abandonment of PUHCA flouts the lessons of deregulation that communities have learned the hard way. In a policy analysis published last June, the National Association of State Public Interest Research Groups (PIRG) reported that in recent years, consumers across the country have been hit with spiking rates and declining services as a result of efforts to "restructure" state electricity systems. The political shock came in 2000, when fraud and market manipulation by the energy conglomerate Enron eluded federal regulators and eventually precipitated rigged energy shortages throughout California.
Robert Burns, a regulatory policy analyst with the National Regulatory Research Institute at Ohio State University, said that in the impending regulatory vacuum, communities will be much more susceptible to such corporate abuses on an even larger scale. Enron-style scandals, he said, are "exactly the type of thing this type of regulation was set up to prevent."
In Oregon, as residents still struggle with high rates left in the wake of the energy crisis, Bob Jenks, executive director of the grassroots consumer group Oregon Citizensâ€™ Utility Board, sees past as prologue. Portland General Electric, the stateâ€™s largest power company, and a cog in Enronâ€™s now-fallen empire, is slated to finally reemerge on the market as an independent entity -- just as PUHCA vanishes. So, although the company will soon be freed from the dominion of big business, said Jenks, "with utility consolidation, thereâ€™s a question of how long that will last." The Board is bracing itself for a swarm of out-of-state industry players hungry for new acquisitions.
Jenks said that since massive holding companies generally defer not to state authority but to market-friendly federal agencies, "once you have that kind of consolidation, you lose a lot of the ability forâ€¦ local regulation thatâ€™s attuned to your stateâ€™s regional needs."
According to Public Citizen and other advocacy groups, with the repeal of PUHCA, corporations from outside the utility sector and from other countries -- both restricted from acquiring utilities under PUHCA -- will now have unfettered access to local electricity markets.
Anna Aurilio, legislative director with US PIRG, predicted, "Youâ€™re now going to see foreign countries, and non-power companies like oil companies, trying to buy up your local utility."
Not everyone fears this possibility. James Owen, spokesperson for the industry lobby group Edison Electric Institute, told The NewStandard that although the trend toward consolidation would continue with or without the repeal, Congress has eliminated "an unneeded and detrimental barrier to companies doing things thatâ€¦ would be in their interest and in the interest of well-functioning wholesale markets."
Warren Buffet, head of the electricity giant MidAmerican Energy Holdings, dangled a hefty incentive before Congress to gut PUHCA when he indicated to the Wall Street Journal in May that he would pump $10 billion into the energy sector once the law was buried.
Even the Federal Energy Regulatory Commission and the Securities and Exchange Commission, the government bodies responsible for enforcing electricity market regulations, have endorsed the PUHCA repeal. They have argued that newer regulatory policies render PUHCA redundant and burdensome.
Consumer advocates, meanwhile, have denounced both agencies for failing to enforce federal protections and abetting market consolidation and inflated prices.
According to PUHCAâ€™s critics, checks on corporate activities impede companies from raising capital to upgrade the electricity infrastructure, and a repeal would thus encourage investment in the countryâ€™s power transmission grid. But consumer advocates have questioned this argument, pointing to industry data indicating that the sector already enjoys both an electricity generation surplus and a favorable investment climate.
The industryâ€™s interest in repealing the act, Jenks said, was in fact "not investing in power plants and wires and poles, but in buying utility stock, pushing up the value of utility companies, making lots of people rich -- but not doing anything to help customers."
The repeal may already be stoking interstate mergers that would probably have been subject to PUHCA strictures. Buffetâ€™s MidAmerican Energy has agreed to purchase PacifiCorp, forging a conglomerate with 6.6 million customers worldwide. Illinois-based Exelon and New Jersey-based PSEG recently struck a deal to fuse into the largest generation system in the country, serving roughly nine million people in three states.
In the public interest community, the outlook is dim for the post-PUHCA regulatory regime. Following the repeal, the oversight of holding companies will essentially be limited to the inspection of the financial and business records of corporations, though the energy bill does not mandate firms to maintain or publicize any specific records.
The bill grants this oversight authority to the Federal Energy Regulatory Commission (FERC), which monitors rates and mergers under the Federal Power Act. Critics say this move will merely compound the agencyâ€™s resistance to its own regulatory purpose. As of July, according to the agencyâ€™s records, the FERC has fully or conditionally approved all but six of the 69 mergers it has reviewed in the past decade.
"FERC is not an agency that has been responsive, on target, or willing to be aggressively enforcing any kind of laws," Aurilio said.
Yet consumer advocates also note that regulators cannot do much when there are simply fewer laws to enforce. Now that Congress has removed "one of the last shreds that the states had to hang onto" in staving off corporate abuse, Aurilio said, "Who are you going to turn to when those rates start going up?"