PUHCA a Leftover from a Different Age; Depression-era Act Blocks Increases in Efficiency, Says NCPA Scholar 7/30/2003
From: Sean Tuffnell of the National Center for Policy Analysis, 800-859-1154 or stuffnell@ncpa.org WASHINGTON, July 30 -- As the Senate continues its debate over the long-awaited energy bill Senators are expected to vote on an amendment that would repeal the Public Utility Holding Company Act (PUHCA). According to scholars from the National Center for Policy Analysis (NCPA), PUHCA no longer reflects the realities of today's electric industry. PUHCA was enacted in 1935 during the Great Depression amid concerns about utility failures and the economic power of large utility holding companies that bought up many independent electric companies. That industry was one of self-sufficient territorial monopoly utilities that controlled all of their own generation, transmission and distribution facilities but were often weakly regulated. "That is not the case today," said NCPA Adjunct Scholar Robert Michaels, a professor of economics at California State University at Fullerton. "Now there is a highly competitive market for power production, with utilities producing only a portion of their own power and relying increasingly on markets for the rest." PUHCA regulates the practices of large multi-state utility holding companies and restricts them from entering other energy-related businesses. Because of these restrictions, PUHCA is considered a major impediment to the development of competitive power markets. One study estimated that PUHCA imposes costs on the electric industry of $3 billion to $12.6 billion annually. Opponents of repeal argue that PUCHA is necessary to protect states and consumers from massive cost hikes by out-of-control monopolies. Yet according to the NCPA, the Federal Energy Regulatory Commission (FERC) is well along in the process of opening up the transmission systems of utilities to nondiscriminatory access by all eligible users, and further reducing utilities' power to abuse their most monopolistic asset by forcing them into regional arrangements under which they will lose operational control of their grids. Thus, even if repealing PUCHA would create larger utilities, this most powerful part of their property will continue to be federally regulated. "This is an age in which information technology and globalization are remaking organizations of all types into more efficient, competitive entities," noted Michaels. "To the extent that PUCHA does anything today, it is in frustrating transactions in corporate control that bring efficiency and consumer benefits." For more information on electricity issues or to speak with an NCPA expert, contact the NCPA's E-Team at 800-859-1154. ------ The NCPA is an internationally known nonprofit, nonpartisan research institute with offices in Dallas and Washington, D.C. that advocates private solutions to public policy problems. We depend on the contributions of individuals, corporations and foundations that share our mission. The NCPA accepts no government grants. |