Public Utility Holding Company Act of 1935
Public Utility Holding Company Act of 1935
James E. Hickey, Jr.
The Public Utility Holding Company Act of 1935 (PUHCA) (P.L. 74-333) reorganized the electric and gas industries and is one of the strongest congressional legislative responses to corporate abuse in American history. Congress declared in PUHCA its policy to "eliminate the evils" of interstate "public utility holding companies," to "compel" simplification of the pyramid system of public utility holding companies, and, with certain exceptions, to provide for "the elimination of public utility holding companies."
THE STRUCTURE OF EARLY HOLDING COMPANIES
In the 1920s and 1930s, electric and natural gas utilities increasingly consolidated their business operations into pyramid-like structures with a holding company at the top which owned or controlled a number of other subsidiary companies. This holding company structure helped utilities to reduce construction and operation costs by taking advantage of economies of scale. That structure helped to increase energy sales, lessen financing costs, lower costs of capital, and reduce costs of materials and equipment through bulk purchasing at discounted prices. For example, large central station electric power plants and interconnected electric service were made possible under the holding company structure. However, the holding company structure was not regulated as a public utility by the states or the federal government. The absence of either state or federal regulation led to holding company abuses like stock manipulation, excessive financial charges, promotion of price speculation, extraction of exorbitant profits and fees from subsidiaries, deceptive accounting, distorted earnings reports, and control by non-utilities like banks. By the early 1930s, just sixteen such holding companies controlled more than 75 percent of the electricity generated in the United States. In addition, during the Great Depression certain electric systems collapsed altogether. Those abuses and market failures provoked federal government intervention in the form of the PUHCA.
THE LEGISLATIVE RESPONSE TO MARKET PROBLEMS
The PUHCA requires public utility holding companies to register with the Securities and Exchange Commission (SEC). An interstate holding company, under PUHCA, is any company that holds ten percent or more of the voting stock of another company (public utility or holding company) or that has a controlling "influence" over another company's "management or policies." The SEC is given substantial and wide-ranging authority over public utility holding companies. If it is "necessary" and "in the public interest," the SEC may control new stock issues of a PUHCA-registered holding company, may prevent the buying and selling of holding company assets, and may, to a large extent, determine the terms of the acquisition of holding company property and stock. The SEC will approve holding company stock and property purchases if they are "economical and efficient" and protect consumers and investors. The SEC also is authorized under the PUHCA to regulate inter-state holding company loans, the payment of dividends, utility service contracts, and accounting methods.
The SEC may order the breakup of holding companies to avoid financial abuses. The PUHCA, as implemented by the SEC, and with some exceptions, limits holding company operations to integrated, one system, one state (or at most its immediate neighboring state) operations and, for the most part, forbids holding companies from engaging in non-utility businesses. The PUHCA requires that all holding companies thrice removed or more from operating subsidiary companies must be abolished. Other holding companies that cannot comply with PUHCA also must be broken-up or restructured.
PUHCA'S EFFECTS AND PROPOSALS FOR REPEAL
The PUHCA resulted eventually in the reduction of public utility holding company influence. For example, holding company control of electricity generation was reduced from 75 percent of all generation to just 15 percent or so. The PUHCA, by effectively reorganizing the electric and gas industries, facilitated greater federal and state regulation of utility wholesale and retail prices and conditions of service.
For the past three decades, there have been calls to repeal PUHCA on grounds that it has successfully fulfilled its task and is no longer necessary. Among those that have supported the repeal of the PUHCA is the SEC itself. The reasons given for repeal include the desire to permit public utility holding companies to buy utilities in different parts of the country and to allow nonutilities to buy utility assets and property. Supporters of repeal argue that consolidation of utilities into holding company structures would provide economies of scale and thus lower utility rates to customers. To reduce the potential for holding company abuse, most advocates of repeal would increase the regulatory powers of the Federal Energy Regulatory Commission (FERC) and state public utility commissions that regulate electric prices and conditions of service to assure that non-utility business is not paid for by utility consumers. In 1992 PUHCA was amended by the Energy Policy Act to exempt from PUHCA's ownership restrictions firms engaged exclusively in wholesale sales of electricity. Even in this cycle of government deregulation, the PUHCA has withstood every attempt to repeal it. Perhaps, the persistence of PUHCA may be explained on several counts. First, regulation under PUHCA is of an essential public service, especially electric and gas service. Second, the availability of reliable and affordable energy is necessary for a healthy and growing American economy. Third, electric utilities are once again beginning to favor the formation of holding companies as they did in the pre-Depression days. Finally, notorius corporate scandals (fraud, mismanagement and the like) in energy companies and utilities like Enron and Worldcom remind many of the potential for precisely the sort of abuses PUHCA was enacted long ago to prevent.
See also: Securities Exchange Act of 1934.
Hawes, Douglas W. "Public Utility Holding Company, Act of 1935—Fossil or Foil?," Vanderbilt Law Review 30 (1977).
Hawes, Douglas W. Utility Holding Companies. New York: Clark Boardman Co. Ltd., 1984.
Phillips, Charles F. The Regulation of Public Utilities: Theory and Practice. Arlington, VA: Public Utilities Reports, 1993.
Aspirin (acetylsalicylic acid, see Figure 1) was introduced as an analgesic (pain-relieving agent) in the late nineteenth century by chemists at Bayer, a German pharmaceutical company. Acetylsalicylic acid is a prodrug and is transformed in the body to salicylate, the active form of the drug. Salicylates are also anti-inflammatory (i.e., prevent swelling and phenomena related to swelling associated with trauma or allergic response). Salicylates were initially isolated from white willow (Salix alba ) bark, from which the name of the drug is derived. Indeed, ancient Greek physicians, notably Hippocrates and Dioscorides, suggested chewing on willow bark to relieve pain.
Although aspirin is chiefly extolled for its analgesic properties, it has other equally important therapeutic benefits. Aspirin is an antipyretic (feverreducing) agent and is used to reduce elevated body temperature. Since the 1980s aspirin has been prescribed for the prevention of heart attack and stroke. Recent studies suggest that aspirin may guard against colon cancer.
Acetylsalicylic acid is a weak acid (pKa = 3.5) that can be absorbed across the mucosal lining of the stomach. However, most of the drug is absorbed from the upper regions of the small intestine. Once the drug has entered the bloodstream it is hydrolyzed to acetic acid and salicylic acid (see Figure 2).
The most widely recognized mode of action of the salicylates is the inhibition of the formation of prostaglandins. Prostaglandins are 20-carbon molecules having side chains of varying degrees of saturation and oxidation , synthesized from polyunsaturated fatty acids in the body in response to tissue damage. The localized release of prostaglandins in response to injury or invasion by foreign agents (antigens) results in an increased blood flow to the affected area, and stimulation of the sensory nerve endings that mediate pain. Salicylates inhibit prostaglandin synthesis by binding to prostaglandin cyclooxygenases (the enzymes responsible for transforming fatty acids into prostaglandins), thereby inactivating the enzymes.
Aspirin is one of the most widely used drugs in modern society. It is most frequently used to treat mild to moderate pain or to reduce fever. Because of its anti-inflammatory action, aspirin is prescribed to individuals who suffer from joint inflammation conditions such as rheumatoid arthritis and osteoarthritis. In addition to its antipyretic, anti-inflammatory, and analgesic properties, aspirin is also prescribed to patients at high risk for heart attack
or stroke. Salicylates retard the clotting of blood by inhibiting platelet aggregation. When platelets aggregate, clotting is promoted and blood flow through vessels and valves is impeded. A stroke results when blood flow to regions of the brain is blocked. Aspirin inhibits enzymes in platelet membranes responsible for the formation of platelet aggregation factors, and thus reduces the risk of blood clots. Enzyme inhibition may also be responsible for aspirin's purported anticancer action. Recent findings suggest that regular doses of aspirin reduce the risks of some cancers (particularly colon cancer). Although scientists do not know how aspirin reduces the risk of cancer, they suspect it could be related to its anti-inflammatory effects and its ability to inhibit enzymes produced by some cancer cells.
Not all of aspirin's health effects are beneficial. Salicylate therapy is associated with many adverse side effects, generally pertaining to the gastrointestinal system. Gastric ulcers and gastric bleeding can occur in individuals on high doses of aspirin. More worrisome is the occurrence of Reye's syndrome in children with viral illnesses such as influenza or chicken pox who have been given aspirin. Reye's syndrome is a serious condition characterized by sudden vomiting, violent headaches, and, in 20 to 30 percent of cases, death. Because of the potential risk of Reye's syndrome in young people administered aspirin, many physicians and the Food and Drug Administration (FDA) warn against the use of salicylates in children under sixteen years of age.
FRIEDRICH BAYER (1825–1880)
In 1863 Friedrich Bayer cofounded a dye manufacturing company in Germany. Eight years after his death, in 1888 the company opened a pharmaceutical division. A decade later, employee Felix Hoffman, concerned over his father's aches and pains, discovered a useful chemical in the waste of the dye process. Known as aspirin, it remains a popular painkiller over 100 years later.
see also Acetaminophen; Acid-Base Chemistry; Hydrolysis; Ibuprofen.
Nanette M. Wachter
Chevallier, Andrew (1996). The Encyclopedia of Medicinal Plants. New York: D.K. Publishing.
Kolata, Gina (2003). "Aspirin, and Cousins, Take a New Role in the War on Cancer." New York Times, March 11, 2003. Section F:1.
Williams, David A.; and Lemke, Thomas L. (2002). Foye's Principles of Medicinal Chemistry, 5th edition. Baltimore: Lippincott Williams & Wilkins.