The Public Utility Holding Company Act of 1935 (PUHCA),Codified at that time at 15 U.S.C. § 79 et seq. also known as the Wheeler-Rayburn Act, was a US federal law giving the Securities and Exchange Commission authority to regulate, license, and break up electric utility holding companies. It limited holding company operations to a single state, thus subjecting them to effective state regulation. It also broke up any holding companies with more than two tiers, forcing divestitures so that each became a single integrated system serving a limited geographic area. Another purpose of the PUHCA was to keep utility holding companies engaged in regulated businesses from also engaging in unregulated businesses. The act was based on the conclusions and recommendations of the 1928-35 Federal Trade Commission investigation of the electric industry. On March 12, 1935, President Franklin D. Roosevelt released a report he commissioned by the National Power Policy Committee. This report became the template for the PUHCA. The political battle over its passage was one of the bitterest of the New Deal, and was followed by eleven years of legal appeals by holding companies led by the Electric Bond and Share Company, which finally completed its breakup in 1961.
On August 26, 1935, President Franklin D. Roosevelt signed the bill into law.
The Energy Policy Act of 2005 repealed the PUHCA under George W. Bush.
Context The passage of the Public Utilities Holding Company Act was the climax to the thirty-year nationwide fight between public vs. private development of electricity in the United States. Other societal issues like the postal service, public roads, schools, social security, national health insurance, and public ownership of electric generation were part of a global phenomenon with most of Europe and regions of the United States in support of mixed economies. The National Electric Light Association and its member companies organized the largest U.S. Public Relations campaign of the 1920s. The campaign had two goals: to stigmatize public ownership on the one hand while promoting the rapid consolidation of the private sector into a few giant multi-tiered holding companies. The nearly 2,000 cities that had public systems, led by Nebraska Senator George W. Norris, Montana Senator Thomas J. Walsh and Pennsylvania Governor Gifford Pinchot were able to pass the 1928 Senate Resolution 83 which directed the Federal Trade Commission to conduct a detailed investigation of the industry's finances and propaganda war waged against publicly owned utilities. That seven-year investigation took on special meaning following the Wall Street Crash of 1929 as the early phase of the investigation showed large scale corruption hidden within the six to ten layered pyramid holding company structures that concentrated financial power in the hands of a few.
In June 1932, the Middle West Utility empire, one of the largest electric holding companies operating in 39 U.S. states went bankrupt, destroying the life savings of hundreds of thousands of small investors across the east and mid-west. New York Governor Franklin Delano Roosevelt, who was a public power supporter campaigned on the issue of reforming the electric industry and won election as the country's 32nd president. His initial years in office included large public works projects such as the Tennessee Valley Authority, Bonneville Power Administration and California's Central Valley Project. These were all massive, federally funded water and power projects that put tens of thousands of people to work. The most important of these projects was the Rural Electrification Administration that finally brought electricity to rural America which was shunned by the country's urban-based electric industry as there was no profit to be made.
As the Federal Trade Commission's seven-year investigation was starting to wind up, Roosevelt formed the National Power Policy Committee (NPPC) to make sense of the investigation and its recommendations. The PUHCA was originally requested by Franklin Delano Roosevelt in his Second State of the Union Address and was based on the work done by the NPPC. The committee was made up of federal agencies, led by Robert E. Healy who oversaw the 1928-35 Federal Trade Commission's 63,000-page electric investigation. On February 6, 1935, the Wheeler-Rayburn bill was introduced by Senator Wheeler (S 1725) and Representative Rayburn (HR 5423). It was one of several New Deal trust-busting and securities regulation initiatives that were enacted following the Wall Street Crash of 1929 and the ensuing Great Depression. By 1932, eight of the largest utility holding companies controlled 73 percent of the investor-owned electric industry.Hyman, Leonard S. (1988), America's Electric Utilities: Past, Present and Future, Public Utility Reports, p. 74. Their complex, highly leveraged, corporate structures were very difficult for individual states to regulate.
History The New Deal's agenda would face its biggest legislative fight over the passage of the PUHCA. Since March 1928, the Federal Trade Commission (FTC) was releasing monthly reports to the Senate on its investigation of the electric industry. On November 15, 1934, the FTC released segment 71A of its 94-volume investigation that summarized the decades-old "propaganda" war against the general public and supporters of municipal ownership of electric facilities. There was little coverage of the FTC's ongoing public hearings or monthly reports by the country's conservative news media, but that would soon change.
On November 20, 1934, the Associated Press released a detailed story about Roosevelt's National Power Policy Committee (NPPC). Roosevelt set up the NPPC on July 29, 1934, to review and report on the FTC's massive electric industry investigation. Roosevelt picked Securities and Exchange Commissioner and former judge Robert E. Healy, who had also been in charge of the FTC's electric investigation, to lead the NPPC review. The article disclosed all of the administration's legislative plan two months before the NPPC or the FTC had released their reports or recommendations on the electric industry.
On January 4, 1935, Roosevelt announced his plan to regulate the electric industry in his Second State of the Union Address. The FTC's investigation was still a year from being completed, with ongoing financial studies and work on the natural gas industry still incomplete. However, on January 25, three days before the FTC released segment 73A of the 94 volume investigation to the US Senate, covering its financial recommendations on electric holding companies, the massive Associated Gas & Electric (AG&E) holding company placed its first large attack advertisement in major newspapers.
The FTC on January 28 released a 200-page report that called for the elimination of "evil practices and conditions" in the industry that its investigation had uncovered. In its November 1934 summary, the FTC documented the "propaganda" war waged against the public power movement dating back at least to 1919. In fact, the industry's own annual proceedings clearly document that its campaign against public power had been active since the 1890s. In 1906, the National Electric Light Association's "co-operation" campaign was established in part to monitor and counter the nationwide public ownership movement.
Conservative press An integral part of the industry's co-operation campaign was its friendly public relations strategy with the nation's press. The result was that the FTC investigation did not appear to be newsworthy. The FTC exposed the industry's nationwide propaganda campaign in the industry's own words to censor any negative coverage or history related to its activities, including the manipulation of the nation's textbook and radio industries.
For example, MH Aylesworth, the first president of the National Broadcasting Company (NBC) was also the executive director of the National Electric Light Association from 1921 to 1926. It was General Electric that founded the Radio Corporation of America, which purchased the country's first radio network from AT&T and became NBC in 1926.
The FTC investigation produced thousands of pages of testimony on how the country's electric industry successfully enlisted the support of the press across the country with its strategy of dangling advertising dollars and submitted vast quantities of anonymous materials to it for publication. The country's mostly conservative press had become allies with the industry in its goal to stigmatize the municipal ownership community as un-American. Going back to the 1907-13 period when the entire country shifted from municipal to state regulation of the electric industry with the creation of state agencies known as Public utilities commissions, this shift that favored private companies should have been framed as a regressive shift in favor of the "power trust" as big electric companies were commonly referred to or "city vs. state" power politics. However, that was not how the conservative press framed the struggle or what its advertising client the electric industry wanted. The shift from municipal to state regulatory oversight also represents one of the largest examples of regulatory capture known as the complexity of the electricity industry combined with the model laws passed between 1907 and 1913 resulted in commissions made up almost entirely of former industry professionals. That bias became evident when 46 of the 48 state commissions openly sided with the electric industry during public hearings on the bill.
In other words, the investigation documented that the electric industry had set up a personal relationship with the owners and editorial boards of the news industry and so were given tens of thousands of free editorial pieces monthly. In many cases, the industry's own press services distributed content, which the local and national newspapers then reprinted without acknowledging the source. The same relationship with the press would then be used to frame the battle to stop the bill by terrifying the country's small investors with their "death sentence" clause, which the press repeated from then onward.
Congressional introduction of legislation On February 6, 1935, 9 days after the Federal Trade Commission released its conclusions and recommendations from its six-year probe, Senator Wheeler (SB 1725) and Rep. Rayburn (HR 5423) introduced legislation that became one of the bitterest legislative fights in history.
Senator Wheeler's version of the legislation was submitted to the Senate's Interstate Commerce Committee, which held public hearings were held, and amendments were voted on and passed by a vote of 14–2 on May 13. The bill passed the full Senate by a vote of 56 to 32 on June 11. However, Representative Rayburn faced a full-scale war. Representatives were being blasted by millions of letters and hundreds of thousands of telegrams demanding the defeat of the legislation, and the industry lined up allies that produced many expert witnesses during hearings. At the same time, an army of unregistered lobbyists stormed the doors of representatives as the country's print media was bombarded with major ads and editorials opposing the legislation.
Death Sentence Clause fails in House vote