Key House Democrats charged the Securities and Exchange Commission (SEC) with "administratively repealing" the Public Utilities Holding Company Act of 1935 in the face of unprecedented "merger mania" and industry globalization. The Holding Company Act has helped limit the market power of large corporations in the utility industry for sixty years, curbing monopolistic abuses of consumers and stockholders. The Congressmen were disturbed by Atlanta-based The Southern Company's announcement of plans to become the world's largest power producer by acquiring the world's fifth largest power producer, based in Hong Kong.
Supporters of the Holding Company Act fear that its repeal, which has also been proposed by members of Congress, will lead to a return to the monopolistic abuses of the 1920's.
Meanwhile, a report released by the Coba Group of Atlanta, Georgia, concluded that 42% ($20 billion) of the total diversified assets of U.S. electric utilities are located outside of the U.S., raising the problem of how to track financing and rate subsidization among subsidiaries of global corporations where the U.S. Government lacks jurisdiction.
Representatives Ed Markey (D-Mass.) and John Dingell (D-Mich.) released a letter charging the Securities and Exchange Commission with dropping the Holding Company Act, asking the SEC to "outline action it was taking on plans by gas and electric utilities Entergy Corporation, Southern Company, and Consolidated Natural Gas Company to move into businesses outside their core areas."
Earlier this year the SEC permitted the Southern Company to invest in foreign utilities. The Atlanta-based company has invested billions in the United Kingdom, acquiring a British regional electric company, Southwestern Electricity P.C. for $1.7 billion, and nearly buying National Power P.C. for $10 billion until the British government prevented the deal.
Just days after the lawmakers' letter was released, the Southern Co. announced that it had reached a $2.7 billion agreement to purchase 80 percent of Hong Kong-based Consolidated Electric Power Asia (CEPA). The Southern Company's acquisition of CEPA's plants in Indonesia, China, the Phillippines and Pakistan, and a total generation capacity of 4,000 MW will make the American corporation the world's largest independent power producer (IPP). A. W. Dahlberg, chairman of the Southern Company said his company is targeting underdeveloped countries for development. "They can't grow without electricity," Dahlberg told Electricity World.
The Coba report revealed that electric power led all other industries in its rate of asset privatization in 1995, at $12.9 billion. Central & South West Corp, Dallas, Texas, ranked second in total investment in assets outside the United States, with $2.5-billion invested overseas, but ranks first in percentage of overseas investments with 20% of their total assets invested outside the United States. Utilicorp of Kansas City, Missouri matched this figure as well.
Electric industry globalization is reflected in domestic "merger mania" unseen since the 1920's. Most recently, a $5.2 billion merger was proposed between Enova Corporation and Pacific Enterprises to create perhaps the single largest investor-owned utility in America. Aside from that, seven utility mergers were announced in 1996 involving over $75 billion in assets. If these are allowed by the SEC and the Federal Energy Regulatory Commission, "merger mania" is expected to accelerate. Some industry analysts predict that the 175 private utilities now controlling 75 percent of the market will merge into a few "megacompanies." And a recent Washington International Energy Group survey revealed that 42 percent of top energy executives believe their companies will disappear over the next decade; 48 percent predict that their operations will merge with other companies. Perhaps the most dramatic example of what is happening was described by Massachusetts economist William Shepherd. In 1990, Iowa had six investor-owned utilities. After the latest merger two will remain. By the year 2000 only one might be left.
David Morris, of the Institute for Local Self-Reliance, said "on the one hand we are developing policies to expand the number of electricity suppliers that customers can choose from. On the other hand we are agreeing to mergers that will shrink the number of suppliers and hamper competition. That these two courses contradict one another apparently has yet to occur to our politicians. For them the attitude seems to be, ‘Full speed ahead and damn the consequences.'"
Copyright (c) 1996 by the American Local Power Project.