Tuesday, August 09, 2005

Public utility deregulation

The Republicans continue their stealth campaign to roll back the New Deal (not that there's much left to roll back). Bush's Energy Policy Act repeals the Public Utilities Holding Company Act (PUHCA), an act from 1935 that regulated the holding companies of electric or retail natural gas utilities. From WorldChanging (the pdf link is worth reading):

"The goal of PUHCA was to prevent the kinds of cross-dealing and subsidiary 'looting' that became increasingly commonplace among owners of utilities in the early days of the Great Depression. According to the excellent 2003 document from Public Citizen, "PUHCA For Dummies: An Electricity Blackout and Energy Bill Primer" (PDF):

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.

Under PUHCA, any companies that seek to become owners of public utilities have to divest themselves of their non-utility holdings. PUHCA rules were designed to make it very, very difficult for energy holding companies to get involved in risky businesses. As a result, not one PUHCA-regulated utility holding company has gone bankrupt since 1935."

PUHCA was enacted because the holding companies had been using their secure revenue streams provided by their positions as monopoly suppliers to invest in other, riskier ventures with higher returns. Like capitalists everywhere, they wanted to take the advantages of government-provided monopoly protection, with its secure and generous, but capped, rates of return, while having the opportunity to gamble with the financial health of the utilities in order to make a high rate of return in other businesses. PUHCA also had the effect of reducing over-concentration of power in the utility industry, and allowed public oversight into the books and records of the holding companies. All that public protection has now quietly disappeared.

After the debacle of the Enron rape of the California electricity market, you would think this kind of reckless deregulation would be politically impossible, but it appears to have slipped through just because it is so technical. It is precisely these seemingly inconsequential policy decisions that lead to the biggest problems in the future. Watch for some big insolvency of a public utility in about five years, which will cause much public disruption and will have to be paid for out of taxpayer monies. The Republicans won't take any political blame for it, although it will be entirely their fault. It will mirror the S & L scandal of a few years ago, also caused by Republican deregulation.