President Franklin Roosevelt signed the Public Utility Holding Company Act (PUHCA) into law on August 26, 1935. The law’s purpose was “To provide for control and regulation of public-utility holding companies…” [1]. It did this by limiting mergers; creating financial rules; requiring holding companies to register with the Securities and Exchange Commission (SEC); and giving the SEC supervisory powers and the power to terminate harmful companies [2].
PUHCA defined a “holding company” as “any company which directly or indirectly owns, controls, or holds with power to vote, 10 per centum or more… a public-utility company… [3]. In short, holding companies are very large corporations that exert control over smaller, local utility companies. They are mostly financial operations interested in siphoning off the steady revenue of utilities and gaining monopoly positions to raise prices.
In the 1920s and 30s, a small number of big holding companies controlled much of the nation’s energy distribution (electricity and natural gas). To make matters worse, they were gambling with their profits: “PUHCA was enacted because huge holding companies were using secure utility revenues to finance and guarantee other, riskier business ventures around the world, and [as a result] 53 utility holding companies went bankrupt from 1929 to 1936 after the banks called in their loans” [4].
FDR strongly disliked economic concentrations of power and frequently spoke out against them. In a message to Congress about monopolies, for example, he said, “The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is Fascism… Among us today a concentration of private power without equal in history is growing” [5]. With respect to public utility holding companies, the president told Congress that American consumers were not getting the best prices for their energy because such companies “can give a few corporate insiders unwarranted and intolerable powers over other people’s money” and they had replaced local control of utilities with absentee management [6].
Opposition to PUHCA was intense and eerily similar to the misinformation campaigns that plague American society today. FDR explained: “I have been watching with great interest the fight being waged against public utility holding-company legislation. I have watched the use of investors’ money to make the investor believe that the efforts of Government to protect him are designed to defraud him. I have seen much of the propaganda prepared against such legislation – even down to mimeographed sheets of instructions for propaganda to exploit the most far-fetched and fallacious fears… So much has been said through chain letters and circulars and by word of mouth that misrepresents the intent and purpose of a new law…” [7].
The PUHCA was one of many New Deal efforts to provide affordable energy to Americans. Other efforts included the Tennessee Valley Authority (TVA), the Rural Electrification Administration (REA), and the many new or improved utility plants constructed by the Public Works Administration (PWA) and Works Progress Administration (WPA).
After 70 years contributing to relative economic stability, the PUHCA was repealed in 2005 under pressure from powerful business groups. Fortunately, some of its regulatory spirit was reinstituted in the Public Utility Holding Company Act of 2005 [8].
SOURCES
(1) The full text of the law can be found at https://www.loc.gov/law/help/statutes-at-large/74th-congress/session-1/c74s1ch687.pdf, Library of Congress (accessed December 29, 2020). (2) See, e.g., “Public Utility Holding Company Act of 1935,” in James S. Olson (ed.), Historical Dictionary of the New Deal: From Inauguration to Preparation for War, Westport, CT: Greenwood Press, 1985, pp. 397-398. (3) See note 1. (4) Lynn Hargis, “PUHCA FOR DUMMIES: An Electricity Blackout and Energy Bill Primer,” Public Citizen, September 2003 (accessed December 29, 2020). (5) “Message to Congress on Curbing Monopolies,” April 29, 1938, American Presidency Project, University of California Santa Barbara (accessed December 29, 2020). (6) “Message to Congress Recommending Regulation of Public Utility Holding Companies,” March 12, 1935, American Presidency Project, University of California Santa Barbara (accessed December 29, 2020). (7) Ibid. (8) See, e.g., Nidhi Thakar, “The Urge to Merge: A Look at the Repeal of the Public Utility Holding Company Act of 1935,” Lewis & Clark Law Review, Vol. 12:3, 2008 (accessed December 29, 2020); and “The Repeal of the Public Utility Holding Company Act of 1935 (PUHCA 1935) and Its Impact on Electric and Gas Utilities,” Congressional Research Service, November 20, 2006, on the website of EveryCRSReport.com (accessed December 29, 2020).
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