Public Utility Holding Company Act of 1935

The Public Utility Holding Company Act of 1935 (PUHCA),[1] also known as the Wheeler-Rayburn Act, was a law that was passed by the United States Congress to facilitate regulation of electric utilities, by either limiting their operations to a single state, and thus subjecting them to effective state regulation, or forcing divestitures so that each became a single integrated system serving a limited geographic area. Another purpose of PUHCA was to keep utility holding companies that were engaged in regulated businesses from engaging in unregulated businesses.

On August 8, 2005, the Energy Policy Act of 2005 passed both houses of Congress and was signed into law, repealing PUHCA.


PUHCA was one of a number of trust-busting and securities regulation initiatives that were enacted in response to the government investigations of the Wall Street Crash of 1929 and ensuing Great Depression, which included the collapse of Samuel Insull's public utility holding company empire. By 1932, the eight largest utility holding companies controlled 73 percent of the investor-owned electric industry.[2] Their complex, highly leveraged, corporate structures were very difficult for individual states to regulate.


The Act required the Securities and Exchange Commission (SEC) to approve a holding company engaging in a non-utility business and such businesses to be kept separate from the utility's regulated business. Holding companies were required to register with the SEC, which would then conduct administrative proceedings to limit each holding company to ownership of a single integrated electric system (with certain exceptions) through the divestiture of the securities of other public utility and unrelated companies.[3]

The Act also authorized the SEC to flatten the corporate structure of utilities to remove unnecessary corporate layers. Individual operating utility companies could centralize certain business operations into central Service Companies, but all Service Companies would be subject to SEC and Federal Power Commission regulation. (In 1977, the Federal Power Commission was replaced by the Federal Energy Regulatory Commission (FERC)).

As a result, when a state utility commission regulated a utility in a particular state, the rate payers of that state would pay only the share of any common service company expenses associated with that state's electric company allocated to it under SEC-approved formulas to prevent a holding company from double recovery of its expenses when it operates in more than one state.

Because the SEC strictly enforced the divestiture provision of PUHCA in its proceedings and ordered divestiture of all corporate holdings except for a single integrated electric system, the affected holding companies filed voluntary divesture plans.[4] As a result, by 1948, holding companies had voluntarily divested themselves of assets worth approximately $12 billion and the number of subsidiaries controlled by affected holding companies was reduced from 1,983 to 303.[4]

An important provision prohibited sales of goods or services between holding company affiliates at a profit. These rules prevented the utilities from increasing their cost-based regulated rates by artificially marking up the prices paid by the utility operating companies above what the central purchasing affiliate paid.

One noticeable impact of this provision was on electric streetcars. Most electric streetcar companies were private companies owned by electric utility holding companies. These streetcar companies were generally unregulated while the electric utilities were regulated. By investing directly in transit firms, the Electric companies, "cash cows" even in the depression, were able to increase the basis of their limited ROI.

The result of the provision was the divestiture of utility-owned electric streetcar companies, which were then acquired by various parties and very often dismantled replaced by buses or trackless trolleys.


Through the years, the utility industry and would-be owners of utilities lobbied Congress heavily to repeal PUHCA, claiming that it was outdated. For example, in 1989, Standley H. Hoch, CEO of General Public Utilities (GPU) had two mandates as leader: trim management and lower costs, and fight to repeal the Public Utility Holding Company Act of 1935.[5]

On August 8, 2005, the Energy Policy Act of 2005 passed both houses of Congress and was signed into law, repealing PUHCA. The repeal became effective on February 8, 2006. It was replaced by a set of laws called the "Public Utility Holding Company Act of 2005", which gave the FERC a limited role in allocating the costs of multi-state electric utility holding companies to individual operating subsidiaries.[6] There were consumer, environmental, union and credit rating agency objections to the new law.

The 2005 Act had many provisions that applied to just electric subsidiary to the exclusion of natural gas subsidiaries of holding companies. On December 8, 2005, FERC recommended that Congress amend the 2005 Act to give FERC cost allocation authority over gas subsidiaries, and greater enforcement authority over gas subsidiaries,[7] but Congress has not acted on FERC's request.

See also


  1. Codified at that time at 15 U.S.C. § 79 et seq.
  2. Hyman, Leonard S. (1988), America's Electric Utilities: Past, Present and Future, Public Utility Reports, p. 74.
  3. The SEC registration requirement was upheld by the Supreme Court in Electric Bond & Share Co. v. Securities and Exchange Commission, 303 U.S. 419 (1938). The divestiture provision was upheld in North American Co. v. Securities and Exchange Commission, 327 U.S. 686 (1946).
  4. 1 2 Curlee, Heather (2006). "Examining EPAct 2005: A Prospective Look at the Changing Regulatory Approach of the FERC" (PDF). Washington and Lee Law Review. Washington and Lee University School of Law. 63 (4): 1662–63. Retrieved July 17, 2012.
  5. Deutsch, Claudia H. (13 Jun 1991). "The Boss Who Plays Now Pays". Retrieved 12 Apr 2014.
  6. Codified at 42 U.S.C. § 16451 et seq.
  7. "Recommendations of the Federal Energy Regulatory Commission on Technical and Conforming Amendments to Federal Law Necessary to Carry Out the Public Utility Holding Company Act of 2005 and Related Amendments". Retrieved 2008-09-30.

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