Senate Votes to Gut the New Deal and No One Notices

The Senate, with bipartisan support, voted to repeal one of the most hard fought and important components of FDR's New Deal Tuesday and there's narily a mention of it anywhere.

The component I'm referring to is PUHCA (Public Utility Holding Company Act of 1935). Both the Senate and House bills repeal this historic measure. And though it's not as big as repealing Social Security, it comes awefully close.

Get this straight people: This is the most important legislation to pass the Senate in years. It is a green-light for a return of the energy monopolies of the 20s and 30s. It is a green-light for the kind of market manipulation and price gouging that Enron engaged in in California -- except on a national scale.

Repeal of PUHCA is where all the money is (over one trillion dollars) in this bill, and after searching Google news for "PUHCA", I got 11 hits. This is clear testimony that the modern press is either too corrupt or too incompetent to do their jobs. Make no mistake, repeal of PUHCA is an historic dismantling of FDR's New Deal, a windfall for the energy and investment lobbies, and it will do more to effect our economy and our way of life than any other piece of Bush's energy bill.

What is the Public Utility Holding Company Act and why does it matter?

Excerpted from PUHCA for Dummies: An Electricity Blackout and Energy Bill Primer by Lynn Hargis Former FERC Assistant General Counsel, Electric Rates

Q. What exactly does PUHCA do?

A. PUHCA: (1) limits the geographic spread (therefore, size) of utility holding companies, the kinds of business they may enter, the number of holding companies over a utility in a corporate hierarchy, and their capital structure; (2) controls the amount of debt (thus, cost of capital), dividends, loans and guarantees based on utility subsidiaries (so the parents can't loot or bankrupt the utility subsidiary), and the securities that parent companies may issue; (3) regulates self-dealing among affiliate companies and cross-subsidies of unregulated businesses by regulated businesses; (4) controls acquisitions of other utilities and other businesses; and, (5) limits common ownership of both electric and natural gas utilities.

Q. (Sarcastically) Is that all?

A. Actually, no. PUHCA also limits the activities (and campaign contributions) of officers and directors of holding companies, has control over their accounts, books and records, and regulates them in a number of other ways.

Should Billionaires and Huge Oil Companies Own Our Public Utilities?

Q. Why do Warren Buffet and ChevronTexaco want to get rid of PUHCA?

A. PUHCA does not allow them to own and control utilities unless they give up their other businesses. (They can passively invest in them now.)

Q. Are you kidding? ChevronTexaco would have to give up its oil business? Buffet would have to give up Berkshire/Hathaway?

A. Correct. PUHCA was enacted because huge holding companies were using secure utility revenues to finance and guarantee other, riskier business ventures around the world, and 53 utility holding companies went bankrupt from 1929 to 1936 after the banks called in their loans.

Q. So PUHCA protects the financial health of public utilities that supply our electricity and retail natural gas?

A. Yes, by controlling their parent companies. Of course, PUHCA was also designed to reduce over-concentration of economic power in just a few companies. The top five oil companies now control 50 percent of oil production in the U.S. If they also controlled public utilities, they would be too powerful for any government to regulate.

What can we expect after PUHCA repeal

Here, we're very fortunate not to have to break out our crystal balls. We merely need to look at what happened after a 1992 exemption was passed into law:

Perhaps the most impressive display of PUHCA's powers is the effect of one simple amendment made to the statute in 1992, the exemption from PUHCA of certain power plants that sold energy exclusively for resale. This was supposed to just create a little competition among power suppliers; instead, it effectively took generation out of the control of state commissions, who had always regulated it, and put it into the hands of FERC, which, to this day, has no statutory authority over generation plants.

This PUHCA partial repeal created power marketers, and ultimately the electricity deregulation debacle in California, the Enron bankruptcy, and the bankruptcies and huge debt of numerous utilities all over the United States. Congress' decisions to amend PUHCA to allow utilities to invest in telecoms and foreign utilities have been equally or even more disastrous to utility finances.

What else can we expect?

Energy Monopolies From Here and Abroad

Anyone will be able to buy your local utility company. And they will be able to use your local utility company as collateral on risky investment thereby subjecting your local utility to excessive risk. Just like Enron.

China will be able to buy your local utility company too just as they are attempting to buy Unocal. But don't worry. Your bill will almost certainly still be in English.

Aside from turning our already chaotic (from partial repeal of PUHCA) energy market into the wild west of trade speculation, one of the biggest threats will be consolidation and centralization.

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."

A Threat to Our Economy

For this I'll refer back to PUHCA for Dummies:

It's the Economy, Dummy

Q. What does a utility law have to do with stocks, loans and the economy?

A. The last time there was no PUHCA we had a Great Depression. The stock market crash started it, but the collapse of the utility holding companies caused the depression to go on and on into the 1930s.

Q. Oh yeah? Why did a bunch of utility owners matter?

A. Utility stocks were held by a very large number of people, as they are now. When the holding companies crashed, both large and small investors lost tens of millions of dollars in investments.

Q. Well, why did the utility companies crash? People still needed electricity, even in a depression.

A. Exactly. It was the parent companies, or "holding" companies that owned or held stock in the utilities, that collapsed because of their non-utility investments.

Q. And that was because ...

A. There is something about electric and natural gas utilities, with their captive, rate-paying consumers, that is irresistible to venture capitalists. They want to use those guaranteed revenues to invest in risky, potentially high-profit, non-utility schemes. They want to keep the profits, and have the utility's customers bear the risks and assume the debt (certainly, that's what Westar Energy's executives had in mind, according to the Kansas Corporation Commission, see below). The holding companies of the late 1920s and early 1930s were so highly leveraged (had so much debt), all supported by the operating utilities at the bottom of the corporate pyramid, that when the banks called in the loans after the crash of 1929, the utility holding companies went down in a heap. The economic consequences for the country were severe.

It's really quite simple. Energy is not another commodity to be traded like widgets. Aside from the fact that it is a natural monopoly with captive consumers, energy is the engine of our economy. Without affordable, reliable energy, no other commodities could be reasonably produced.

What PUHCA has done for the last 70 years is to provide a firm foundation on which the rest of the economy can thrive. Once you attach our energy market to the tides of the rest of the markets, you set yourself up for extreme disaster as we experienced with the Great Depression.

There is a reason why seventy-six national and state public interest organizations came together to plead congress not to repeal the Public Utility Holding Company Act. It is quite possibly the single biggest cause for the economic stability we've enjoyed for the last 70 years.

Democrats Who Voted To Gut FDR's New Deal - Again

Akaka (D-HI)
Baucus (D-MT)
Bayh (D-IN)
Biden (D-DE)
Bingaman (D-NM)
Boxer (D-CA)
Byrd (D-WV)
Cantwell (D-WA)
Carper (D-DE)
Clinton (D-NY)
Conrad (D-ND)
Dayton (D-MN)
Dorgan (D-ND)
Durbin (D-IL)
Feinstein (D-CA)
Harkin (D-IA)
Inouye (D-HI)
Johnson (D-SD)
Kennedy (D-MA)
Kerry (D-MA)
Kohl (D-WI)
Landrieu (D-LA)
Leahy (D-VT)
Levin (D-MI)
Lincoln (D-AR)
Mikulski (D-MD)
Murkowski (R-AK)
Murray (D-WA)
Nelson (D-NE)
Obama (D-IL)
Pryor (D-AR)
Reid (D-NV)
Rockefeller (D-WV)
Salazar (D-CO)
Sarbanes (D-MD)
Stabenow (D-MI)

Update [2005-6-29 19:59:13 by TocqueDeville]: I really should have included the Democrats who voted Nay:

Corzine (D-NJ)
Feingold (D-WI)
Lautenberg (D-NJ) Nelson (D-FL)
Reed (D-RI)
Schumer (D-NY)
Wyden (D-OR)