Repeal of FDR-era Consumer Protection Would Lead to More Disasters, Higher Electricity Rates

A provision of the federal energy legislation that a congressional conference committee will consider next month would dramatically reduce the regulatory oversight of the nation’s largest energy firms. The section, which has received scant attention as lawmakers and environmental groups focus on issues of oil drilling, proposes to repeal the 1935 Public Utility Holding Companies Act, or PUHCA, which restrains and regulates utility companies. The deregulation of state energy systems and federal decisions to loosen regulatory control of electricity in recent years exacerbated severe strains on the Northeast power system, according to the Foundation for Taxpayer and Consumer Rights (FTCR), a California-based nonprofit organization.

In a letter sent to President Bush on Monday, FTCR called for an end to all legislative and regulatory proposals to further deregulate the nation’s energy system in the wake of the blackouts. The group also urged the President to specifically investigate the connection between deregulation and the outages.

“Despite the recent blackouts and the memory of the California energy crisis, politicians are quietly planning to further deregulate the nation’s energy system,” said FTCR’s senior consumer advocate Douglas Heller. “In the rush to address the flaws in our energy system, President Bush and lawmakers must not ignore the devastating role of deregulation and the failure of the market to keep the lights on and prices reasonable.”

Danger of PUHCA Repeal
Contained in Section 223 of the proposed energy bill, HR 6, is the repeal of the Public Utilities Holding Company Act of 1935 (PUHCA). According to consumer advocates, this is the energy industry’s holy grail. The repeal of PUCHA would:

• Undercut regulators’ ability to stop market abuses before they arise.
• Allow big utilities to move ratepayer money away from projects needed to protect local customers.
• Allow big utilities to engage in business ventures not related to their core utility business, using ratepayer money to subsidize corporate projects.
• Allow greater consolidation in the electricity industry, creating fewer and larger utility monopolies, which have a wider reach of control over the energy system yet less regulatory oversight.
• Lead to more complex utility corporations that are less accountable to the public.

“It would be obscene to throw out seventy years of consumer protections after everything that has gone wrong in the first decade of deregulation. The repeal of PUHCA would leave America with a few unrestrained power giants controlling our energy system, which would make California and the recent blackouts seem mild compared to the deregulated future politicians have in store for us if they repeal PUHCA,” said Heller.

A series of rule changes and exemptions to PUHCA during the 1990s have already had detrimental outcomes, according to FTCR. After gaining an exemption from PUHCA in 1994, Enron was able to dominate power markets virtually unchecked. FTCR also noted that FirstEnergy, the utility, which has received much of the initial blame for the blackouts has been involved in a series of workplace and public safety disasters as it has expanded into a consolidated utility holding company operating in multiple deregulated markets.

“Clearly we need more energy regulation not less. For years the energy industry has pushing unsuccessfully for the complete repeal of PUHCA and it hopes that, with lawmakers distracted by other aspects of the energy proposal, this dramatic deregulation of the power industry will slip by largely undetected,” said Heller.

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