Time To Repeal The Public Utility strongHolding Companystrong Act.pdfVIP

TIME TO REPEAL THE PUBLIC UTILITY HOLDING COMPANY ACT R. Richard Get/des The Public Utility Holding Company Act of 1935 (PUHCA)’ was passed during the Great Depression in response to the failure of a number of utility holding companies and subsequent investor losses. Many investors were defrauded due to information problems peculiar to the holding company structure. The utility holding company struc- ture undoubtedly helped disguise unscrupulous practices, such as the bilking of subsidiaries through service contracts, inappropriate depreciation techniques, and the use of inflated property values, all of which contributed to the collapse of the holding companies (Hawes 1987). Numerous holding-company activities are subject to regulation under PUHCA, including the acquisition and sale of securities, the acquisition of utility assets, intercompany transactions, service, sales and construction contracts, and reports and accounts. Importantly, PUHCA places restrictions on mergers involving registered holding companies. An important aspect ofpolicy analysis is the review ofold regulations in light of economic change and technological progress. The character ofthe electric utility industryhas changed, and will continue to change, in a way that makes the Act more costly: • Financial analysis and accounting standards have evolved in such a way as to make its provisions unnecessary. • PUHCA limits the choice of organizational structure for many firms, both utilities and non-utilities. GateJournal, vol. 16, No. 1 (Spring/Summer 1998), Copyright © Cato Institute. All rights reserved. B. Richard Ceddes is Assistant Professor of Economics at Fordham University. He thanks Michael Block, Bill Conway, Torn Le