The Public Utility Holding Company Act (PUHCA) of 1935 prevents utility holding companies from subsidizing unregulated business activities with profits from their regulated business. Not surprisingly, many in the private equity industry argue that the law is archaic and restricts fair play and diversification in the electric industry.
“The market caps in place today will never allow certain power generators to recover their costs,” said Mitchell Hertz, the partner in charge of Kirkland & Ellis’ energy law practice. “Ultimately, we need to give generators the ability to recover their costs…that’s the only way to get [private equity] firms to enter the market. Regulators are capable of facilitating, or killing, this market.”
Energy watchdog groups insist PUHCA’s repeal will bring about a wave of mergers that would create monopolies, “rendering competition meaningless and harming consumers and the environment,” according to a statement on the Union of Concerned Scientists’ Web site.
“We live in different times compared to when PUHCA was enacted,” said another energy lawyer. “In the 1930s, less than a handful of companies controlled more than half of the entire U.S. utility sector.”
Hertz agrees: “Some have predicted a huge wave of consolidation if PUHCA is repealed, but I think that’s an overstatement. There will be mergers, but no rush to create large national power companies that some predict.”