Ollie:
I think it is you that are educating us.
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Congress enacted PUHCA as a response to the shady business practices of huge utility holding companies during the 1920s and 30s. These holding companies controlled utilities in complicated pyramid structures, where a few investors at the top held controlling shares of many subsidiary companies. In the early 1930s, three holding companies controlled almost half the utility industry, with one owning 130 utilities.
Sounds like the fox used to guard the chicken coop. Human nature doesn't change. A new fox will happily take over the old chicken coop.
Here's the way the right wing Cato boys put it:
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The Public Utility Holding Company Act of 1935 (PUHCA) [1] was passed during the Great Depression in response to the failure of a number of utility holding companies and subsequent investor losses. Many investors were defrauded due to information problems peculiar to the holding company structure.
"Peculiar to the holding company structure," whooo wee, What a way to say they were crooks.
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An important aspect of policy analysis is the review of old regulations in light of economic change and technological progress. The character of the electric utility industry has changed, and will continue to change, in a way that makes the Act more costly.
• Financial analysis and accounting standards have evolved in such a way as to make its provisions unnecessary.
• PUHCA limits the choice of organizational structure for many firms, both utilities and non-utilities.
• It restricts the market for corporate control and protects entrenched managers.
• It limits the ability of utilities to diversify, both across regions and across industries.
PUHCA imposes substantial costs on shareholders and customers of the electric utility industry with no offsetting benefits; it is time for its repeal.
Are they sayin' that the foxes have whole new ways to be crooked? Are they offering much of anything obvious to the utility customer?
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Many of the concerns addressed in PUHCA reflect the structure of the industry in 1935. [5] Indeed, the integration and simplification requirements have been described as "the very heart" of the statute (SEC 1982: 17). Electricity then was considered to be strictly a natural monopoly, which led regulators to grant legal monopolies. With such legal monopolies there was a substantial concentration of power, so limits on a firm's geographic boundaries and its outside investments made sense. The changes described earlier suggest that market power is being reduced both by the introduction of market forces and by new organizational forms. Competition is increasing rapidly in the utility industry and will continue to increase in the foreseeable future, thus making irrelevant the concerns that motivated PUHCA.
You know, the utility industry has not changed significantly from a topological point of view. It is still generation, transmission and distribution. I think they are still "natural monoplies."
I'd like to see this go the other way and have people take over the means of power production. If is was controlled at the grass roots instead of by big corporations, perhaps the interest of the common man would be better served. Isn't this more of a populist viewpoint? I don't think state owned utilities would be a bad thing at all.
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In a monopolistic, rate-of-return regulated environment, a substantial amount of inefficiency can be accommodated in the firm's organizational structure before the firm suffers financially. In a competitive environment, however, inefficiently structured firms are more likely to suffer. As the utility industry becomes more competitive, the market process will replace the regulatory process in the determination of managerial decisions.
In a nonregulated utility environment, a greedy company can rob from rich and poor alike and keep the money calling it legal profit. How many power companies have come knocking on your door?
Ollie, thanks for this post. I read through the Cato boys post and saw little to nothing that would benefit the consumer. They speak of corporate efficiencies and sacking managers who don't take the greedy hard bottom approach. No clear mechanism seemed to be presented where the there would even be the magic "trickledown" effect offered to the rest of us by corporate voodoo economics.
I hope whoever is behind the repeal of this old law hasn't bought too many politicians. This one sounds like a bad move for the average citizen.
I hope you get some other opinions on this one. It could turn out to be quite the education.