Yet another New Deal program could be history

Lawmakers adopted the Public Utility Holding Company Act (PUHCA) in 1935, establishing the regulatory framework that led to the development of regional, monopoly utilities.

Passed in a response to a wave of bankruptcies among power companies controlled by a few large trusts, the act restricts mergers between utilities and prohibits utility operators from investing in other businesses.

So constrained, utility companies have pushed for the repeal of PUHCA for years, arguing that it discourages investment in the electricity infrastructure that ensures a light comes on when a switch is flicked.

“Given the strong need for new capital in both the electricity and natural-gas industry, it would make sense that any willing party should be able to participate in bringing new capital to the field,” said Jonathan Weisgall, a lobbyist at the utility MidAmerican Energy, one of the main backers of PUHCA repeal.

Congress adopted a major rewrite in 1992 that allowed power producers to sell electricity in wholesale markets unencumbered by the act. But PUHCA, enforced by the Securities and Exchange Commission, continues to regulate a number of power and retail natural-gas companies.

Lawmakers may finally pull the plug on the seven-decade-old law this year, however, as high energy costs and President Bush’s renewed interest in the bill have provided new momentum to energy legislation. That is likely to lead to new players in the energy market and some consolidation among existing utilities, observers said.

But while lawmakers from both parties have supported repeal of PUHCA, unlike private accounts for Social Security, disagreement over what, if any, consumer protections should replace PUHCA could again threaten the bill in the Senate, where similar legislation stalled two years ago.

The House-passed energy bill includes a provision to repeal PUHCA. Senate Republican and Democratic staff members continue to debate what consumer protections should replace the act, said Bill Wicker, a spokesman for Democrats on the Senate Energy and Natural Resources Committee.

Sen. Jeff Bingaman (D-N.M.), the ranking member on the committee, wants to provide the Federal Energy Regulatory Commission (FERC) more power to review utility mergers as a condition of PUHCA repeal.

Republicans have argued that FERC’s current review authority, and the authority of the Department of Justice and Federal Trade Commission to review utility mergers, provide sufficient consumer protections to guard against the type of financial turmoil that led to PUHCA’s passage 70 years ago.

But this time around, Committee Chairman Pete Domenici (R-N.M.) has said he is more open to compromise with Democrats, who promised to offer a long list of amendments had it come to the floor again last Congress.

Domenici supports PUHCA repeal but also “wants to protect utility customers and address the concerns that Democrats have had about repealing the act,” his spokeswoman Marnie Funk said.

Consumer groups such as Public Citizen, meanwhile, are lobbying against repealing PUHCA under any condition. They argue that it will lead to the type of freewheeling business deals that led to the act’s passage in the first place and contributed to the downfall of power companies such as Enron more recently.

PUHCA repeal increases the chance that electric consumers will end up paying for their utility’s sour investments, critics said.

“When people get their $500 electric or natural-gas bills, Social Security is going to seem irrelevant,” said Lynn Hargis, a former FERC lawyer now at Public Citizen.

Weisgall said the House bill already includes a direction to FERC that it block companies from turning to ratepayers to bail them out of their poor business decisions. The bill also includes stiffer fines for utilities that try to manipulate power markets.

But Hargis said PUHCA provides a consistent regulatory framework that the consumer protections being discussed won’t be able to replace.

“It’s like a load-bearing wall. It’s been there so long people forget its holding up the house,” Hargis said.

The Energy and Natural Resources Committee is likely to mark up a bill next month. Two of the most controversial energy issues — drilling in the Arctic National Wildlife Refuge and limited liability protections for makers of a gasoline additive that has contaminated some water supplies — will likely be left out of the discussion.

That leaves the electricity title as one of the biggest obstacles to Senate passage of a bill, sources said.

“You get into the fundamental role of regulation versus role of the market in protecting the interests of consumers,” said Alan Richardson, the president and CEO of the American Public Power Association, which supported the Senate energy bill last Congress but favors the type of beefed up consumer protections pushed by Bingaman.

“That is a pretty basic, core issue.”