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

CRS Report for Congress
The Repeal of the Public Utility Holding Company
Act of 1935 (PUHCA) and Its Impact
on Electric and Gas Utilities
November 20, 2006
Adam Vann
Legislative Attorney
American Law Division

Congressional Research Service ˜ The Library of Congress

The Repeal of the Public Utility Holding Company Act
of 1935 (PUHCA) and Its Impact on
Electric and Gas Utilities
The Public Utility Holding Company Act of 1935 was repealed in the Energy
Policy Act of 2005. Prior to repeal, the Public Utility Holding Company Act of 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, 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 Securities and Exchange Commission 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companies by the Public Utility Holding Company Act of 1935 have been repealed.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 and the Natural Gas Act, 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 U.S. Securities and Exchange Commission, the U.S. Department
of Justice, and the Federal Trade Commission 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

In troduction ......................................................1
SEC Oversight of Public Utilities Under PUHCA 1935....................2
The Repeal of PUHCA 1935 and Enactment of PUHCA 2005...............4
The Continuing Regulatory Authority of FERC, FTC, and DOJ..............7
What Lies Ahead for the Utility Industry...............................10

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

1 The Public Utility Holding Company Act of 1935 was enacted as Title I of the Public
Utility Act, P.L. 74-333.
2 Public Utility Regulatory Policies Act of 1978, P.L. 95-617, at § 210 (e), 16 U.S.C. § 824a-


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.
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 Hart-
Scott-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

3 Energy Policy Act of 1992, P.L. 102-486, at § 711, (amending PUHCA 1935 to include
exemption for wholesale generators of electricity).
4 Energy Policy Act of 2005, P.L. 109-58, at §§ 1261- 1277.
5 Id.
6 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).
7 15 U.S.C. § 18.
8 For a more detailed discussion of PUHCA 1935, see CRS Report RS20015, Electricity
Restructuring Background: Public Utility Holding Company Act of 1935 (PUHCA), by Amy

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
intergrated 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
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 non-utility 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

9 PUHCA 1935, P.L. 74-333.
10 Id
11 Id.
12 Id.
13 Id.
14 Id
15 Id.

savings due to the non-utility 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
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 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

16 P.L. 95-617, at § 210 (e), 16 U.S.C. § 824a-3(e).
17 Energy Policy Act of 1992, § 711 (amending PUHCA 1935 to include exemption for
wholesale generators of electricity).
18 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).
19 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 Senateth
Comm. on Banking, Housing and Urban Affairs, 97 Cong., 2d Sess. (1982).
20 See Lynn Hargis, PUHCA For Dummies: An Electricity Blackout and Energy Bill Primer,
Public Citizen’s Critical Mass Energy and Environmental Program, September 2003,
[] .

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

21 Energy Policy Act of 2005, P.L. 109-58, at §§ 1261- 1277.
22 Id. at § 1274.
23 Id. at § 1264.
24 Id.

transactions and 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
proceedi n gs . 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

25 Id. at § 1272.
26 Order No. 667, 70 Fed. Reg. 75,592 (2005).
27 See 18 C.F.R. Part 366.
28 Order No. 667, 70 Fed. Reg. at 75,626.
29 Id.
30 Id.
31 Energy Policy Act of 2005, P.L. 109-58, at § 1265.
32 Id.

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
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
The Continuing Regulatory Authority of
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-

33 Order No. 667, 70 Fed. Reg at 75,592.
34 Energy Policy Act of 2005, P.L. 109-58, at § 1266(a); 18 C.F.R. § 366.3.
35 Id.
36 18 C.F.R. § 366.3(d).
37 Markian M.W. Melnyk and William S. Lamb, PUHCA’s Gone: What is Next for Holding
Companies?; 27 Energy L. J. 1,18 (2006).

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 or38
arrangements that involve Commission-jurisdictional companies.
Under the FPA and NGA, FERC is charged with regulating the interstate39
transmission of natural gas and electricity. 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 over42
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,

38 70 Fed. Reg. at 75,592.
39 16 U.S.C. § 824(b).
40 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.
41 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).
42 16 U.S.C. § 824b(a)(2).
43 Energy Policy Act of 2005, P.L. 109-58, at § 1270.

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.
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

44 Id.
45 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 Janice Rubin.
46 15 U.S.C. § 28.
47 15 U.S.C. §§ 18a(b)(1), (2).

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
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 utlities. 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
non-utility 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

48 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.
49 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).
50 Melnyk and Lamb, at 27 Energy L.J. at 15.

(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.

51 The Electric Utility Industry After PUHCA Repeal: What Happens Next?, October 2005,
American Public Power Association, at pp 2-3.
52 Melnyk and Lamb, 27 Energy L.J. at 20.