The Repeal of the Public Utility Holding Company Act of 1935 (PUHCA 1935) and Its Impact on Electric and Gas Utilities

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The Repeal of the Public Utility Holding

Company Act of 1935 (PUHCA 1935) and

Its Impact on Electric and Gas Utilities

(name redacted)

Legislative Attorney

November 20, 2006

Congressional Research Service

7-....

www.crs.gov

RL33739

CRS Report for Congress

Prepared for Members and Committees of Congress

The Repeal of PUHCA 1935 and Its Impact on Electric and Gas Utilities

Summary

The Public Utility Holding Company Act of 1935 (PUHCA 1935) was repealed in the Energy

Policy Act of 2005. Prior to repeal, PUHCA 1935 required “holding companies” (i.e., companies

with subsidiaries engaged in the electric utility business or the retail distribution of natural or

manufactured gas) to register with the U.S. Securities and Exchange Commission (SEC), satisfy

certain disclosure requirements, and comply with strict operational limitations. These operational

limitations imposed significant geographic and corporate holdings restrictions upon holding

companies and effectively limited ownership of public utilities to a small subset of companies

focused specifically on the industry.

Pursuant to the repeal, the SEC no longer has oversight authority for electric and gas holding

companies, and many of the procedural and substantive requirements placed upon public utility

holding companies by PUHCA 1935 have been repealed. The burden of oversight of the financial

transactions of public utility companies, including mergers and acquisitions, now falls more

heavily on the Federal Energy Regulatory Commission (FERC). FERC’s oversight authority over

public utilities, previously established in the Federal Power Act (FPA) and the Natural Gas Act

(NGA), was enhanced by the Energy Policy Act of 2005, which included the Public Utility

Holding Company Act of 2005. This new legislation requires holding companies and their

affiliates to provide the Commission (as well as state regulators) access to their books and records

and also grants the Commission additional authority for oversight of holding company

transactions.

In addition, the SEC, the U.S. Department of Justice (DOJ), and the Federal Trade Commission

(FTC) will continue to enforce generally applicable laws as they apply to public utility holding

company transactions. These laws, which were unaffected by the Energy Policy Act of 2005,

prevent transactions that would substantially impede competition and can require pre-merger

notification.

This report will describe the current state of federal oversight of public utility holding companies

and transactions involving public utilities. It will be updated as necessary.

Congressional Research Service

The Repeal of PUHCA 1935 and Its Impact on Electric and Gas Utilities

Contents

Introduction ................................................................................................................................1

SEC Oversight of Public Utilities Under PUHCA 1935 ...............................................................2

The Repeal of PUHCA 1935 and Enactment of PUHCA 2005 .....................................................3

The Continuing Regulatory Authority of FERC, FTC, and DOJ...................................................6

What Lies Ahead for the Utility Industry .....................................................................................9

Contacts

Author Contact Information ........................................................................................................9

Congressional Research Service

The Repeal of PUHCA 1935 and Its Impact on Electric and Gas Utilities

Introduction

Congress has imposed ownership and operational limitations on the utility industry since early in

the 20th century. Different statutes have targeted different industry practices, all with the general

goal of ensuring dependable utility services for the public at reasonable rates. The most recent

legislative effort to further these goals is the Energy Policy Act of 2005.

One of the most significant provisions in the Energy Policy Act of 2005 is the repeal of the

Public Utility Holding Company Act of 1935 (PUHCA 1935).1 PUHCA 1935 imposed a

number of substantive restrictions and procedural requirements upon companies that owned

greater than 10% of the voting securities or otherwise exercised a controlling interest over electric

and/or gas public utilities. The statute was administered by the U.S. Securities and Exchange

Commission (SEC).

PUHCA 1935 had long been a subject of controversy. Supporters of PUHCA 1935 had claimed

that the strict limitations on public utility holding companies protected the financial health of

utility providers and therefore the dependability of service and the consistency of rates.

Supporters also argued that the limitations provided a barrier against market domination and

manipulation by large corporations. Proponents of repeal argued that ownership restrictions and

SEC filing requirements were unduly burdensome and effectively barred investment in the utility

industry for many new investors who could bring new ideas and vitality to the industry.

PUHCA 1935’s reach had been receding for many years prior to its repeal. In 1978, the Public

Utility Regulatory Policies Act (PURPA) created exemptions from PUHCA 1935 requirements

for owners of certain types of cogeneration and renewable energy power plants, referred to as

“Qualifying Facilities.”2 The Energy Policy Act of 1992 created another class of PUHCA

exemptions for owners of generation facilities serving the wholesale electricity market,

commonly referred to as “Exempt Wholesale Generators.”3

The Energy Policy Act of 2005 repealed PUHCA 1935, thus revoking the SEC’s authority to

oversee mergers and other transactions of public utility holding companies.4 In the same

legislation, Congress adopted new language concerning regulation of holding companies, often

referred to as the Public Utility Holding Company Act of 2005 (PUHCA 2005).5 PUHCA 2005

expands the authority of the Federal Energy Regulatory Commission (FERC) to oversee

transactions and other financial activities of public utility holding companies through grants of

access to those companies’ books and records.6 The statute grants similar access rights to state

regulatory authorities. However, unlike its predecessor, PUHCA 2005 does not impose any of the

substantive restrictions that effectively barred many entities from ownership of public utilities.

The Public Utility Holding Company Act of 1935 was enacted as Title I of the Public Utility Act, P.L. 74-333.

Public Utility Regulatory Policies Act of 1978, P.L. 95-617, at § 210 (e), 16 U.S.C. § 824a-3(e).

Energy Policy Act of 1992, P.L. 102-486, at § 711 (amending PUHCA 1935 to include exemption for wholesale

generators of electricity).

Energy Policy Act of 2005, P.L. 109-58, at §§ 1261-1277.

Id.

Pursuant to its statutory grant of expanded authority, FERC has adopted regulations to effectuate its enhanced

authority to regulate public utility holding companies. See Repeal of the Public Utility Holding Company Act of 1935

and Enactment of the Public Utility Holding Company Act of 2005, Order No. 667, 70 Fed. Reg. 74,592 (Dec. 20,

2005), FERC Stats. and Regs. ¶ 31,197 (2005).

Congressional Research Service

The Repeal of PUHCA 1935 and Its Impact on Electric and Gas Utilities

Although the repeal of PUHCA 1935 allows previously ineligible investors to own public utilities

without satisfying SEC requirements, transactions involving utilities and public utility holding

companies still must satisfy the regulatory requirements of other agencies. The U.S. Department

of Justice (DOJ) and the Federal Trade Commission (FTC) are both charged with enforcing the

applicable antitrust statutes, § 7 of the Clayton Act and the pre-merger provisions of the HartScott-Rodino Antitrust Improvements Act of 1976.7 In addition, laws and regulations enforced by

the SEC governing the issuance of securities and disclosure requirements remain in effect for

these entities.

SEC Oversight of Public Utilities Under

PUHCA 1935

In order to understand the significance of the repeal of PUHCA 1935 and the laws and regulations

enacted in its place, it is necessary to understand the scope and function of PUHCA 1935.8

PUHCA 1935 regulated “holding companies” that had subsidiaries that were electric utility

companies or that engaged in the retail distribution of natural gas or manufactured gas. The

statute defined a “holding company” as (a) a company that controls 10% or more of the

outstanding voting securities of a public utility company (or of another holding company); or (b)

a person whom the SEC determines exercises a controlling influence over the management of

policies of any public utility or holding company so as to make it necessary or appropriate in the

public interest to subject that person to the requirements of the statute.9

Under the statute, public utility holding companies faced substantial restrictions on their

operations. All electric public utilities were required to be part of a single integrated public utility

system “consisting of one of more units of generating plants and/or transmission lines and/or

distributing facilities, whose utility assets, whether owned by one or more electric utility

companies, are physically interconnected or capable of physical interconnection and which under

normal physical conditions may be economically operated as a single interconnected and

coordinated system confined in its operations to a single area or region ... not so large as to

impair ... the advantages of localized management, efficient operation, and the effectiveness of

the regulation.”10 Substantially similar rules applied to gas utility companies. 11

PUHCA 1935 also placed restrictions on many transactions related to public utility corporate

structure. Mergers and acquisitions were required to maintain the simplicity of the holding

company system and be in the public interest.12 Public utility holding companies were not

permitted to hold non-utility businesses unless such businesses were “reasonably incidental, or

economically necessary or appropriate” to the operations of the public utility system. 13 The SEC

was tasked with regulating securities issuances of companies in a holding company system, in

15 U.S.C. § 18.

For a more detailed discussion of PUHCA 1935, see CRS Report RS20015, Electricity Restructuring Background:

Public Utility Holding Company Act of 1935 (PUHCA), by (name redacted).

PUHCA 1935, P.L. 74-333.

Id.

Congressional Research Service

The Repeal of PUHCA 1935 and Its Impact on Electric and Gas Utilities

order to guard against significant debt-equity imbalance. 14 The statute also limited interaffiliate

transactions, prohibiting some transactions completely while requiring advance reviews of other

transactions and requiring all interaffiliate transactions to be “at cost.”15

PUHCA 1935’s restrictions on utility holding companies were enacted in response to the creation

of a small number of “power trusts” in the early part of the 20th century that controlled the utility

industry through holding companies. These companies made huge profits through predatory use

of their market power. The holding companies also mixed their utility holdings with their nonutility businesses, leveraging their “safe” utility businesses to finance and guarantee riskier

business ventures. Some attributed the stock market crash of 1929 in part to the practices of these

holding companies, as many who had invested in utility stocks lost their savings due to the nonutility activities of holding companies. PUHCA 1935 was enacted to guard against exercise of

undue market power and the cross-subsidization of utility and non-utility investments.

The importance and effectiveness of the restrictions of PUHCA 1935 had been a subject of

disagreement for some time. Prior to the recent repeal of the statute, Congress had twice acted to

create exceptions to the PUHCA 1935 requirements. In 1978, Congress enacted the Public Utility

Regulatory Policies Act. Portions of this Act created an exemption from the PUHCA 1935

requirements for owners of certain qualifying cogeneration and renewable power plants,

commonly referred to as “Qualifying Facilities.”16 The Energy Policy Act of 1992 created another

exemption from the PUHCA 1935 requirements for independent electricity generators serving the

wholesale electricity market, commonly referred to as “Exempt Wholesale Generators.”17

The Repeal of PUHCA 1935 and Enactment of

PUHCA 2005

In recent years, the creation of exemptions gave way to calls for the complete repeal of PUHCA

1935. Supporters of repeal argued that repeal of PUHCA would spur investment in the

transmission infrastructure and facilitate competition in the industry and that enhanced federal

and state laws and regulations since the enactment of PUHCA provide for adequate customer

protection.18 Even the SEC, the agency charged with administering the statute, called for its

repeal on more than one occasion.19 Those who opposed the repeal argued, among other things,

that PUHCA 1935 protected customers by preventing utility companies from cross-subsidizing

Id.

P.L. 95-617, at § 210 (e), 16 U.S.C. § 824a-3(e).

Energy Policy Act of 1992, § 711 (amending PUHCA 1935 to include exemption for wholesale generators

of electricity).

See Testimony of Pat Wood III, Chairman, Federal Energy Regulatory Commission, Before the Government Reform

Subcommittee on Energy and Resources, 109th Cong., 1st Sess. (2005).

See SEC, The Regulation of Public Utility Holding Companies (1995); see also U.S. Securities and Exchange

Commission, Statement Concerning Proposals to Amend or Repeal the Public Utility Holding Company Act of 1935

(1982), and Public Utility Holding Company Act Amendments: Hearing Before the Subcommittee on Securities of the

Senate Comm. on Banking, Housing and Urban Affairs, 97th Cong., 2d Sess. (1982).

Congressional Research Service

The Repeal of PUHCA 1935 and Its Impact on Electric and Gas Utilities

and incurring excessive capital costs, reducing the potential for exercise of undue market power,

and ensuring the reliability of utility services and the reasonableness of rates.20

Congress repealed the entirety of PUHCA 1935 in the Energy Policy Act of 2005.21 The repeal

became effective on February 8, 2006.22 As of that date, all of the SEC-enforced requirements and

restrictions placed on public utility holding companies under PUHCA 1935 were removed.

Holding companies are no longer required to meet the SEC’s disclosure and registration

requirements simply by virtue of their status as holding companies, although the SEC’s other

procedural requirements for the issuance of securities and regular reporting by public companies

remain in effect. The utility industry is now open to a broader group of investors who may have

been previously deterred by the restrictions of PUHCA 1935, and conversely, public utility

holding companies are now free to pursue a broader range of opportunities, including merger with

and acquisition of other utilities outside their geographic area and investment in non-utility assets.

However, the repeal of PUHCA 1935 also creates the potential for the return of some of the

problems in the utility industry that the enactment of the statute was intended to curtail; namely,

undue exercise of market power and cross-subsidization of utility and non-utility businesses.

Congress sought to provide a safeguard against many of the concerns regarding reliability of

service and the reasonableness of rates by enacting new oversight legislation, often referred to as

PUHCA 2005. PUHCA 2005 expanded the authority of FERC and state regulatory commissions

to oversee holding company and utility financial activities and transactions. FERC had authority

over many holding company activities prior to the enactment of PUHCA 2005, but the statute

represents an extension of this authority that is intended to compensate in part for the removal of

SEC oversight of holding companies.

To facilitate FERC enforcement of rate regulation, limitations on cross-subsidization and other

substantive standards, PUHCA 2005 created new reporting and review requirements for holding

companies, their subsidiaries and their affiliates. First, a holding company and its subsidiaries

must maintain and make available to FERC “such books, accounts, memoranda, and other records

as the Commission determines are relevant to costs incurred by a public utility or natural gas

company that is an associate company of such holding company and necessary and appropriate

for the protection of utility customers with respect to jurisdictional rates.”23 Further, subsidiaries

and affiliates of holding companies must maintain and make available to FERC “such books,

accounts, memoranda, and other records with respect to any transaction with another affiliate, as

the Commission determines are relevant to costs incurred by a public utility or natural gas

company that is an associate company of such holding company and necessary or appropriate for

the protection of utility customers with respect to jurisdictional rates.”24 This oversight authority

is intended to allow FERC to discourage improper dealings between and among a holding

company and its subsidiaries or other affiliates, including improperly priced transactions and

See Lynn Hargis, PUHCA For Dummies: An Electricity Blackout and Energy Bill Primer, Public Citizen’s Critical

Mass Energy and Environmental Program, September 2003, http://www.citizen.org/documents/puhcafordummies.pdf.

Energy Policy Act of 2005, P.L. 109-58, at §§ 1261-1277.

Id. at § 1274.

Id. at § 1264.

Id.

Congressional Research Service

The Repeal of PUHCA 1935 and Its Impact on Electric and Gas Utilities

cross-subsidization. The Act required FERC to issue regulations to effectuate the scheme

envisioned in the legislation by December 8, 2005.25

FERC adopted the required regulations in Order No. 667, which was published on December 8,

2005, and went into effect on February 8, 2006.26 These regulations detailed the new filing

requirements for holding companies and traditional service companies as well as the requirements

for maintaining books and records and making these books and records available to FERC for

review. 27 FERC also determined that Section 1275(c) of the Energy Policy Act, which provides

that the Energy Policy Act does not affect the authority of the Commission or state agencies under

other applicable laws, was a “savings clause” which did not give the Commission the authority to

issue regulations on previously regulated activities.28 As a result, FERC declined to issue further

regulations on holding company system cross-subsidization, encumbrances of utility assets,

diversification into non-utility businesses, or the extension of cash management rules. 29 FERC

noted that current Commission regulations adopted pursuant to the authority of the FPA and the

NGA already provide for agency oversight of such activities and that states’ regulations also

provide oversight for these activities. Therefore, the Commission ruled that it would “monitor

industry activities and we will adopt new regulations on cross-subsidization or encumbrances of

utility assets, pursuant to our FPA and NGA authorities, only at such time as our current

regulations appear to be insufficient.”30

PUHCA 2005 also grants authority to state utility commissions to access books and records of

holding companies and their affiliates.31 According to the statute, upon written request of a state

commission having jurisdiction over a public utility in a holding company system, the holding

company and any associated companies or affiliates thereof must produce for inspection any

books, accounts, memoranda or other records that (a) have been identified in reasonable detail in

a proceeding before the state commission; (b) the state commission determines are relevant to

costs incurred by such public-utility company; and (c) are necessary for the effective discharge of

the responsibilities of the state commission with respect to such proceedings.32

The new access and review authority granted to FERC and state commissions in PUHCA 2005

are intended to help fill potential oversight gaps created by the repeal of PUHCA 1935.

Specifically, the record access and review provisions may help to mitigate the potential for the

exercise of undue market power by any public utility holding company system, as well as to

protect against cross-subsidization between utility and non-utility subsidiaries. These provisions

are ultimately intended to help ensure reasonable rates and reliable service. However, it is

important to note that, as FERC stated, PUHCA 2005 “is primarily a ‘books and records’ statute,

and does not give the Commission any new substantive authorities.”33

Id. at § 1272.

Order No. 667, 70 Fed. Reg. 75,592 (2005).

See 18 C.F.R. Part 366.

Order No. 667, 70 Fed. Reg. at 75,626.

Id.

Energy Policy Act of 2005, P.L. 109-58, at § 1265.

Id.

Order No. 667, 70 Fed. Reg at 75,592.

Congressional Research Service

The Repeal of PUHCA 1935 and Its Impact on Electric and Gas Utilities

PUHCA 2005 and Order No. 667 also continue to exempt Qualifying Facilities and Exempt

Wholesale Generators, as well as foreign utility companies, from the requirements otherwise

applicable to holding companies and their affiliates and subsidiaries under the statute and

regulations.34 Certain additional persons and classes of transactions are also exempted. These

important exemptions include passive investors (mutual funds and other collective investment

vehicles); broker/dealers, underwriters and fiduciaries who buy and sell securities in the ordinary

course of business; utilities that have no captive customers; transactions in which the holding

company affirmatively certifies that it will not charge, bill, or allocate to the public utility or

natural gas company in its holding company system any costs or expenses and will not engage in

financing transactions with the public utility or natural gas company; transactions between or

among affiliates that are independent of and do not include a public utility or natural gas

company; electric power cooperatives; and local gas distribution companies. 35 FERC also has

discretionary authority to grant exemptions from the applicable requirements for any person or

transaction. 36 FERC exempted these Qualifying Facilities, Wholesale Generators, and foreign

utility companies because its main regulatory interest is to monitor the costs incurred by

traditional utilities providing monopoly service in order to ensure reasonable rates. The

exemptions and waivers are intended to remove from PUHCA 2005 regulation those entities that

would be unlikely to affect jurisdictional rates.37

The Continuing Regulatory Authority of FERC,

FTC, and DOJ

As FERC has stated, the change in PUHCA law granting it new authority to review books and

records did not affect the Commission’s

... primary means of protecting customers served by jurisdictional companies that are

members of holding company systems: the [Federal Power Act (FPA)] and the [Natural Gas

Act (NGA)]. In particular, the Commission’s rate authorities and information access

authorities under the FPA and the NGA enable the Commission to detect and disallow from

jurisdictional rates any imprudently-incurred, unjust or unreasonable, or unduly

discriminatory or preferential costs resulting from affiliate transactions between companies

in the same holding system. This includes both power transactions and non-power goods or

services transactions between Commission-regulated companies that have captive companies

and their “unregulated” affiliates. ... further ... in the context of individual rate cases

involving public utilities that seek to flow through in jurisdictional rates the costs of affiliate

purchases of non-power goods and services, the Commission has the ability to protect

customers by reviewing the prudence and justness and reasonableness of such costs. The

Commission has also adopted rules and policies regarding cash management practices or

arrangements that involve Commission-jurisdictional companies.38

Energy Policy Act of 2005, P.L. 109-58, at § 1266(a); 18 C.F.R. § 366.3.

Id.

18 C.F.R. § 366.3(d).

Markian M.W. Melnyk and William S. Lamb, PUHCA’s Gone: What is Next for Holding Companies?; 27 Energy L.

J. 1,18 (2006).

70 Fed. Reg. at 75,592.

Congressional Research Service

The Repeal of PUHCA 1935 and Its Impact on Electric and Gas Utilities

Under the FPA and NGA, FERC is charged with regulating the interstate transmission of natural

gas and electricity. 39 The FPA also grants FERC authority over electric utility mergers.40 Section

203 of the FPA requires FERC to approve any merger attempted by the public utilities within the

agency’s jurisdiction before the transaction can occur. Section 203 was modified somewhat by the

Energy Policy Act of 2005, but most of FERC’s authority was preexisting. Under the revised

Section 203, a public utility must obtain prior FERC approval in order to (a) sell, lease or dispose

of its facilities or any portion of its facilities valued in excess of $10,000,000 without prior FERC

approval, (b) merge or consolidate their facilities with any other entity; (c) purchase, acquire or

take any security of any other public utility with value in excess of $10,000,000; or (d) purchase,

lease or otherwise acquire a generation facility valued in excess of $10,000,000 that is used for

interstate wholesale sales and is subject to FERC ratemaking authority.41 The revised Section 203

also requires holding companies to obtain FERC approval prior to any merger or acquisition with

any transmission company, electric utility, or holding company valued at over $10,000,000.42

PUHCA 2005 also extends FERC’s authority under Sections 306 and 317 of the FPA to holding

company systems.43 These sections allow FERC to conduct investigations and hearings, compel

the production of witnesses and documents, enjoin and restrain violations, and impose penalties.44

Previously these sections granted such authority only with respect to public utilities.

The new FERC oversight authority granted in PUHCA 2005 is best seen as creating a new tool

for FERC to enforce its preexisting authority under the FPA and, to a lesser extent, the NGA.

FERC’s previously existing authority under the FPA and NGA gave it jurisdiction over rates and

in many cases FERC permission was required for certain transactions. PUHCA 2005 should not

be thought of as a simple transfer of authority from the SEC to FERC. FERC is not tasked with

enforcing strict corporate ownership and management rules as the SEC was required to do under

PUHCA 1935. PUHCA 2005 confirms FERC’s preexisting authority to regulate transactions

under the FPA and the NGA, and grants the Commission a few new tools to do so.

16 U.S.C. § 824(b).

Although the FPA and NGA are similar in many respects, the NGA does not contain a provision that parallels the

above-cited provision in the FPA concerning authority over mergers. This may be because mergers of natural gas utility

companies were less frequent and not cause for significant concern when the NGA was enacted in 1938.

16 U.S.C. § 824b(a)(1). Note that these new threshold amounts triggering jurisdiction represent a substantial increase

over the previous threshold amounts of $50,000. There had been some concern that the revised language of Section

203(d) would require FERC approval for equipment purchases in excess of $10,000,000 and various types of internal

transactions. FERC addressed these concerns in an administrative order, generally excluding these types of transactions

from the purview of Section 203. See Transactions Subject to FPA Section 203, Order No. 669, 71 Fed. Reg. 1348

(Jan. 6, 2006), FERC Stats. and Regs. ¶ 31,200 (2005).

16 U.S.C. § 824b(a)(2).

Energy Policy Act of 2005, P.L. 109-58, at § 1270.

Id.

Congressional Research Service

The Repeal of PUHCA 1935 and Its Impact on Electric and Gas Utilities

As the previous paragraphs describe, although the repeal of PUHCA 1935 removes extensive

restrictions on transactions involving public utilities and their holding companies previously

enforced by the SEC, it does not affect the regulation of these entities by FERC. Transactions are

also subject to the general regulation of other federal agencies. Although the SEC is no longer

tasked with enforcing the restrictions of PUHCA 1935, holding companies and their investors still

must comply with the SEC’s general reporting requirements and securities regulations. Also, two

antitrust laws, the Clayton Act and the Hart-Scott-Rodino Antitrust Improvements Act, are

relevant in the context of prospective mergers and acquisitions that are now permissible in the

absence of PUHCA 1935. The United States Justice Department (DOJ) and the Federal Trade

Commission (FTC) are charged with enforcing these laws.45

The Clayton Act and the Hart-Scott-Rodino Act apply to any utility mergers or acquisitions.

Accordingly, in addition to the FERC review of these transactions as set forth in the revised

Section 203 of the FPA, mergers in the energy industry are also reviewed from the perspective of

their compliance with the requirements of antitrust and market-based concerns by DOJ and FTC.

Section 7 of the Clayton Act prohibits mergers or acquisitions which “tend to create a

monopoly.”46 The pre-merger notification provisions of the Hart-Scott-Rodino Act require that

certain mergers and acquisitions (those meeting applicable size and other criteria) be notified to

both the Attorney General and the Chairman of the Federal Trade Commission prior to

consummation of the transaction. The statute prohibits the consummation of any covered

transaction prior to the expiration of a statutorily specified “waiting period” unless the reviewing

agency grants an “early termination.”47

As the above text demonstrates, several regulatory agencies have overlapping jurisdiction over

electric utility mergers and acquisitions. DOJ, FTC and FERC are each tasked to some extent

with jurisdiction over electric utility merger transactions, and each utilizes the DOJ/FTC

Horizontal Merger Guidelines. 48 Theoretically at least, all are proceeding from the same

assumptions and will reach the same conclusion with respect to particular transactions. However,

the differing statutory and regulatory prisms through which these Guidelines are necessarily

filtered may produce different results. Approval of a transaction by one federal agency does not

constitute federal government approval, and the transaction is still subject to scrutiny under the

antitrust laws.49

For a more detailed discussion of the federal government’s role in preventing exercise of monopolies, see CRS

Report RS20241, Monopoly and Monopolization—Fundamental But Separate Concepts in U.S. Antitrust Law, by

(name redacted).

15 U.S.C. § 28.

15 U.S.C. §§ 18a(b)(1), (2).

The Guidelines were promulgated in 1992 and revised in 1997 to take account of possible inefficiencies resulting

from a merger or acquisition transaction. FERC utilizes the Guidelines in its examination of utility market power.

See Otter Tail Power Co. v. U.S., 410 U.S. 376, 372-73 (1973). In support of this conclusion, the Court cited

California v. Federal Power Commission, 369 U.S. 482, 489 (1961) (holding that a Federal Power Commission

approval of an asset acquisition pursuant to Natural Gas Act authority did not bar an antitrust suit, as no pervasive

scheme for antitrust review had been entrusted to a single agency) and U.S. v. Radio Corp. of America, 358 U.S. 334

(1959) (holding that an exchange of radio stations that had been approved by the Federal Communications Commission

as in the “public interest” was subject to attack in an antitrust proceeding).

Congressional Research Service

The Repeal of PUHCA 1935 and Its Impact on Electric and Gas Utilities

What Lies Ahead for the Utility Industry

The repeal of PUHCA 1935 does not remove all obstacles to previously barred electric and gas

utility transactions. State regulatory agencies still have the authority to regulate electric and gas

utilities. By granting state commissions increased access to utility and holding company books

and records in PUHCA 2005, legislators may have been contemplating increased participation of

the state commissions in review and regulation of public utility holdings companies. Since the

repeal of PUHCA 1935, no state has enacted any new laws or regulations concerning review of

public utility mergers or other transactions. Some states may rely on preexisting statutory or

regulatory language authorizing review of transactions to ensure that they are in the public

interest. Other states may enact new legislation or take regulatory action to increase review or

possibly even restrict certain transactions involving public utilities. State commissions as well as

FERC may increase regulation of cross-subsidization between utility and non-utility businesses in

the same holding company system, the use of utility balance sheets to finance non-utility

businesses, and the financial health of potential holding company owners.50 These measures may

help to protect consumers who rely on utility service from the financial vulnerabilities of nonutility entities. These protections are especially important in the case of utilities that provide

monopoly service for customers.

Increased merger and acquisition activity is also possible. A review of analyst predictions by the

American Public Power Association reveals a wide spectrum of predictions, some analysts

expecting a large-scale centralization of the industry (including one prediction of a 50% reduction

in the total number of major electric utilities), while others expect to see only a small change in

the industry structure.51 Among the “non-traditional” investors who could become players in the

utility sector are large private equity funds, diversified U.S. energy companies, diversified foreign

investors and certain foreign banks and pension funds. 52 This new investment could allow entities

with varied backgrounds to enter into the utility sector.

Author Contact Information

(name redacted)

Legislative Attorney

[redacted]@crs.loc.gov, 7-....

Melnyk and Lamb, at 27 Energy L.J. at 15.

The Electric Utility Industry After PUHCA Repeal: What Happens Next?, October 2005, American Public Power

Association, at pp. 2-3.

Melnyk and Lamb, 27 Energy L.J. at 20.

Congressional Research Service

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