Exponential Enrons Ahead
t r u t h o u t | Perspective
Thursday 23 June 2005
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.
Sokol claims that: "Consumers have saved tens of billion of dollars since Congress began the process of opening
wholesale electricity markets to competition 10 years ago." He also argues that by restricting utility ownership, PUHCA
is keeping new capital out of the energy industry that is needed for upgrading the electric power transmission grid.
I spoke with Jack Casazza, an electrical engineer who was a Senior VP for an investor-owned utility and who now serves
on a task force investigating the power blackout of August 14, 2003. Casazza scoffs at the idea that regulation is
keeping needed grid upgrades from happening. "Warren Buffett doesn't know what he's talking about," he said, "and he
doesn't have very good technical people. Utilities today have no problem investing in transmission facilities if they
are needed and provide economic returns."
On the other hand, grid reliability is an issue of vital concern, and labor is the key. Jim Spellane, communications
director for the International Brotherhood of Electrical Workers (IBEW), said that the problem with grid reliability
arose with deregulation in the 1990s. "It squeezed things like maintenance and worker training."
Casazza echoed that opinion and said that one significant cause of the 2003 blackout was labor reductions. He wondered
how Warren Buffett "would get the 25 percent rates of return he is used to. He can't cut labor, that's already been
cut."
The IBEW issued a statement on June 15 praising the Senate Energy Committee for including the new FERC authority in the
bill, while recognizing that the greater regulatory powers of PUHCA were still needed. The union had flatly opposed any
PUHCA repeal in the past, but Spellane said, "We could see this energy bill has legs. It is going to pass and we want to
make sure that the FERC oversight does not get stripped out along the way." House Republicans are against even that
minimum amount of consumer protection and Spellane said the IBEW will oppose the final bill if it does not include it.
Senator Ron Wyden was the only member of the Energy Committee who voted against sending the bill to the Senate floor. A
top reason given for his dissatisfaction was repeal: "The bill also repeals the Public Utility Holding Company Act
(PUHCA) without providing adequate safeguards to prevent captive ratepayers from getting fleeced to support unregulated
businesses of utility parent companies."
Jack Casazza is wistful for the utilities of the past. "I'm a believer in capitalism," he said, "and I believe in
getting a reasonable return on my investment. But the company I came up in believed that you don't hurt the customer. I
have grandchildren and I want to see this country run so they benefit, not so Warren Buffett can put money in his
pocket."
Lynn Hargis fears we are headed for another Great Depression. She said, "Not only is it going to be horrible for the
whole country, but nobody is even talking about it."
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Kelpie Wilson is the t r u t h o u t environment editor. A veteran forest protection activist and mechanical engineer,
she writes from her solar-powered cabin in the Siskiyou Mountains of southwest Oregon. Her first novel, Primal Tears, is
forthcoming from North Atlantic Books in Fall 2005.