Congress Prepares to Pulverize 70 Years of New Deal Protections

By Meteor Blades

[Cross-posted at The Next Hurrah].

Montana, that spark of Democratic hope, offers a teensy bit of that scarce stuff on the energy regulation front. But, first, an introduction.

It’s taken Dick Cheney and his cronies four years to get an oligarch-friendly, environment-savaging energy bill through the House and Senate. Short of a revolt by the rank and file of Congress, however, that legislation will finally be plunked onto the President’s desk before he heads out to pretend through another August that he’s a Crawford rancher.

The only thing that makes this putrescent pandering to petroleum interests less awful than the likely confirmation of John Roberts Jr. to the Supreme Court is that the Democrats can override today’s energy legislation with their own if they’re ever in the White House and congressional majority again. Roberts, on the other hand, we’ll be stuck with past my 90th birthday.
While some of the details of this 1300-page bill have changed since I first wrote about it here and here nearly two years ago, it’s mostly the same old pork pile. Sure, anyone can find something to like in this bill. That’s the idea. Stack the bacon so high everybody gets a taste. Too few Democrats dare say no.

Others, like Devilstower and environmentalist, have done superb jobs of lambasting the bill in grim detail. All through the four years this legislation has traveled the halls of Congress, several organizations have offered alternatives. For instance, the the Apollo Alliance, a broad coalition of eco-advocacy groups and labor unions now backed by nine Democratic governors, calls for a ten-year investment of $300 billion to build the production and distribution infrastructure for cleaner energy. Then there are the ideas of American Council for an Energy-Efficient Economy,  the National Energy Policy Initiative, the  Natural Resources Defense Council. If you want a truly farsighted look, Steve Silberman’s July 2001 piece in Wired marks an excellent place to start.

I’ve had a few ideas of my own. Three examples: Provide funds for a fast-track switch to hybrids and other high-mileage, low-pollution vehicles in the federal fleet as well as offer federal incentives to states, counties and municipalities that do the same. As I’ve been whining about since 1980, raise gasoline taxes 5 cents a gallon annually and spend the revenue on renewables research and rebates to low-income Americans hurt most by high gasoline prices. Legislate a boost in Corporate Average Fuel Economy standards for passenger vehicles from 27.5 mpg to 40 mpg by, say, 2015, as originally proposed by Rep. George Miller in 2001. That last move alone would save us more oil every day than we import from Saudi Arabia every year.

Obviously, there wasn’t a chance that my ideas, or most of those put forth above by the groups above, had a snowball’s chance in our current political hell.

What we’re being saddled with until somebody performs a makeover is energy legislation that includes few specific goals, piles of taxpayer cash for energy industries already making record profits, a half-assed nod to conservation, a nose-thumbing to eco-advocates and a speed-up in public land drilling even though oil and gas companies already have more permits than they can handle. Moreover, the legislation won’t fulfill the most basic promise of its proponents – making the U.S. independent of foreign oil. In fact, according to the Department of Energy,  itself concluded that within 20 years, the energy bill would increase oil imports by 82.9 percent, barely lower than the 84.8 percent expected under current energy policy. In the What Me, Worry world of congressional myopia, that’s what passes for progress.

I could go on in this vein for gigabytes, but I’ll be merciful. Instead, let’s take a look at an overlooked section that may be the very worst element of a bill brimful of them: the repeal of the Public Utilities Holding Company Act of 1935. Kelpie Wilson at truthout.org and ToqueDeville at Daily Kos wrote solid pieces on this subject last month while the media continued its long nap.

You can read PUHCA’s actual language here and get a thorough grounding from attorney Lynn Hargis’s excellent PUHCA for Dummies.

PUHCA emerged from an all-too-familiar story. During the 1920s, Sam Insull and J. Pierpont Morgan and a few others competed with their various holding companies (and holding companies of holding companies) to swallow as many utilities nationwide as they could in what amounted to a giant pyramid scheme. Soon, three companies owned half of the country’s utilities. Come 1929, with banks calling in loans, the whole skim-scam imploded.

To encourage local ownership and prevent the practices that had led to the collapse, FDR proposed PUHCA, which quickly found a large majority in Congress. But it’s been under fire for more than a decade. PUHCA was weakened in 1992 and 1996. So what does … ahem … did it do?

Hargis writes:

Q. What is a “holding” company, anyway?

A. A holding company owns or holds stock in another company; a public utility holding
company owns or holds stock in an electric (or retail natural gas) utility.
Q. What exactly does PUHCA do?

A. PUHCA: (1) limits the geographic spread (therefore, size) of utility holding companies, the kinds of business they may enter, the number of holding companies over a utility in a corporate heirarchy, and their capital structure; (2) controls the amount of debt (thus, cost of capital), dividends, loans and guarantees based on utility subsidiaries (so the parents can’t loot or bankrupt the utility subsidiary), and the securities that parent companies may issue; (3) regulates self-dealing among affiliate companies and cross-subsidies of unregulated businesses by regulated businesses; (4) controls acquisitions of other utilities and other businesses; and, (5) limits common ownership of both electric and natural gas utilities.

Q. (Sarcastically) Is that all?

A. Actually, no. PUHCA also limits the activities (and campaign contributions) of officers and directors of holding companies, has control over their accounts, books and records, and regulates them in a number of other ways.

Hargis then proceeds to rip apart the concept promoted by, among others, self-interested Warren Buffett and the
market-forces-are-all-we-need crowd at the Cato Institute, who declare that PUHCA is, after seven decades, no longer needed and hindering investment for expansion and efficiency upgrades.

Sen. Ron Wyden, D-Ore., the only Democrat on the Senate Energy and Natural Resources Committee who adamantly against PUHCA’s repeal says demolishing the law will open the gates for a very few giant companies – like Halliburton and Exxon Mobil – to gain control over the nation’s utilities while watering down the power of state regulatory boards and weakening consumer protection.

“If, as the critics say, the law is outdated, it doesn’t mean investors and consumers don’t need protections,” Wyden said. “Repeal of PUHCA is going to make it easier for big utilities to get bigger.”

But you don’t have to go to believe a lone wolf Congressman or a consumer advocate. Public Utilities Fortnightly reports in its July 14 issue:

More than one chief executive interviewed for Fortnightly’s June cover story proclaimed the manifest destiny of corporate growth. Bigger is better, they said. Consolidation will happen. But this strategy has been met with mixed corporate performance in other industries. What is most startling about such declarations is the scant criticism or critical discussion they receive given the impact such changes would have.

The fact that many utility industry analysts and utility executives predict that someday it won’t take more than five utilities to run the country’s power infrastructure means a fantastically different industry than we see today.

George Bilicic, managing director at investment bank Lazard, envisions a utility some day twice the size of Exelon-PSEG. That would mean a utility of 100,000 MW [megawatts, about one-ninth of the total electricity capacity of the United States.] best guess, a market capitalization of approximately $60 billion to $80 billion. If such an entity were to exist, most agree there would be no hope for competitive markets.

It’s not hard to imagine who will be doing the buying:

Now the question is what Exxon will do with its loot. The company has
amassed a cash hoard of $23 billion.

The Wall Street Journal, February 7, 2005.

We don’t have to speculate about the results of this latest installment in returning us to the Gilded Age. We’ve got the Enron, many of whose now-legendary shenanigans were fueled or abetted by exemptions it obtained from PUHCA regulations. And then there’s Montana Power.

Having persuaded state legislators to free it from regulation, the executives of Montana Power decided in the late 1990s to step into some rocketing new businesses. It sold off its utility operations and entered telecommunications, a field in which it foundered, ultimately filing for bankruptcy, a tale told by CBS News. Northwestern Corp., a South Dakota company freed from PUHCA exemptions, bought many of Montana Power’s utility assets for $1 billion in 2002, but also invested in telecommunications, particularly fiber optics, and, as Slate reports, was forced into Chapter 11 bankruptcy from which it emerged nine months ago.

Consequences of this greed and arrogance? The state’s tax coffers were damaged, and nearly half-a-million Montanans were screwed. Once the state boasted some of the lowest electricity rates in the country; now they’re among the highest in a state that’s one of the poorest.

There is, as I said when I started out, some hope in Montana. Even though the circumstances are unique, with PUHCA out of the way, maybe the proposal of five Montana mayor will soon provide a model
for a few other soon-to-be-beleaguered places.

Whether the mayors will ultimately succeed – and whether their non-profit can do a better job of generating reasonably priced electricity than private companies – is anybody’s guess, although it’s hard to imagine they could do worse than the experts at defunct Montana Power or NorthWestern.

As Missoula Mayor Mike Kadas says, “We’re concerned about a lot of the monkey business that’s occurred over the last 10 years.”

The rest of us can worry about the next 10.