Exponential Enrons Ahead

One of the least-discussed provisions in the Bush energy bill that has passed the House and is now fast-tracked in the Senate is PUHCA repeal. "Pooka repeal," you say, "what's that?"

The Public Utilities Holding Company Act (PUHCA) is a cornerstone New Deal financial reform signed into law in 1935. It was the biggest battle in FDR's first term. Utilities had become cash cows for power moguls who created complex holding company pyramids for milking ultra-reliable ratepayer income to feed speculative investments. The crash of 1929 knocked these structures flat and took down millions of small investors who had been sold on the reliability of utilities as an investment.

Does any of that sound familiar?

Both the House and Senate versions of the energy bill now contain the PUHCA repeal provision. At the insistence of Democrats, the Senate added in some extra oversight by FERC (Federal Energy Regulatory Commission), but it is a thin reed compared to PUHCA.

Supporters of PUHCA point out that for 50 years, we have had reliable, cheap electric power that has allowed strong economic growth, and that no PUHCA-regulated energy holding company has ever gone bankrupt. Furthermore, it was partial PUHCA repeals in the 1990s that opened the door to Enron, Westar and other energy debacles. To repeal PUHCA now is equivalent to blowing up the barn after the horses have escaped, never mind shutting the barn door.

PUHCA subjects utility finances and operations to strict regulation by the states and federal government. Most importantly, it restricts ownership of utilities to public or private entities that are in the business of producing power, and keeps speculators out. Replacing this kind of control with mere oversight is a joke. It is like trying to rebuild the barn with splinters.

Lynn Hargis is an attorney with a long professional career in power generation, including ten years at FERC. For the past two years, she has held a volunteer position at Public Citizen educating the public about the perils of PUHCA repeal. She says that "it is clearly impossible for a state (or even federal) utility commission, with its limited staff, to review, much less understand and control, the books and records of a huge conglomerate ..." Once PUHCA is gone, she predicts, "there will be a white-hot fury of buying and selling utilities and utility assets -- it will be a revival of the 1920s, when three huge companies owned half of all utilities."

There has been a lot of media focus on the $18 billion in tax incentives contained in the Senate energy bill, but almost nothing about PUHCA repeal, even though the latter is by far the greatest prize: according to Lynn Hargis the value of all regulated utilities exceeds one trillion dollars.

Hargis says there will be so much money chasing these utilities that even the venerable public-owned and municipal-owned utilities (PUDs and MUDs) won't be able to hold out.

And get ready to start paying your power bill to Halliburton because some of the companies best positioned to take advantage of this deregulation are oil companies: "The top five oil companies now control 50 percent of US oil production. If they also controlled public utilities, they would be too powerful for any government to regulate," said Hargis.

Also, the impact on renewable energy could be devastating. "If GE owns your utility," Hargis told me, "nothing will be able to stop them from shoving a nuclear plant down your throat. This will kill renewables."

David Sokol is CEO of MidAmerican Energy Holdings Company, a subsidiary of Warren Buffett's Berkshire Hathaway that is now in the process of acquiring PacificCorp, a western utility based in Portland, Oregon. In a 2002 issue of Electric Perspectives, an industry newsletter, Sokol made the case for PUHCA repeal, calling it "the most blatantly out-of-date energy law." In fact, the law as it stands would prevent him from acquiring PacificCorp.