Back in the 1910s and 1920s, Samuel Insull, president of Commonwealth Edison in Chicago, and banker J.P. Morgan put together a network of privately owned holding companies that controlled must of the major electric utilities in the US. In the late 1920s and early 1930s, this dangerous pyramid of companies collapsed, threatening the stability of electrical service across the country.
In 1935, the US Congress passed the Public Utility Holding Company Act which limited the size and activities of utilities to prevent the collapse of dangerous financial structures that threatened the US electrical and natural gas infrastructure.
This federal law remained in place until the Cheney Administration and the Republican-controlled Congress repealed it as part of the 2005 Energy Policy Act. The 2005 Energy Policy Act was the same law that granted massive rate payer subsidies to power companies for building new high voltage transmission lines. Readers of The Power Line are very familiar with the disastrous impacts of this transmission subsidy scheme.
So erstwhile “free market” Republicans passed the 2005 Energy Policy Act to encourage the growth of new, unstable monopoly holding companies in the electricity markets and huge subsidy schemes for those same holding companies to build obsolete and unneeded high voltage transmission, all at the expense of electric retail customers.
We are witnessing the results of the repeal of the 1935 Utility Holding Company Act in real time. Holding companies AEP and FirstEnergy have dumped obsolete coal-fired power plants onto the captive electric bills of West Virginians. New post-2005 repeal holding companies are merging into ever fewer monopolies that operate in multiple business lines and exert increasing power in regional transmission organization cartels across the US. The attempt by Chicago-based Exelon to swallow regional distribution company PEPCo Holdings on the East Coast is just the latest in the holding company monopoly game, and this one even includes Atlantic City.
I have posted a number of times, here, here, here and here, about the Exelon merger, because the forces at play in this case offer real insight into the train wreck that is West Virginia’s electrical system. In the last few years, the WV PSC and the two Ohio-based holding companies that control WV’s electric utilities have played West Virginians for chumps. AEP’s and FirstEnergy’s coal-fired power plants can no longer compete in wholesale electricity markets, so friendly regulators have forced their WV customers to pay for much more power plant capacity then customers will need for the next thirty years.
Exelon is moving to create that same situation for the customers of PEPCo’s companies. Exelon’s shaky holding company structure is almost entirely dependent on expensive and obsolete nuclear power plants. Like coal-fired power plants, nukes are struggling to compete in the free market. Exelon is paying billions of dollars above PEPCo’s stock value because it wants access to PEPCo’s captive rate payers in stable regulated retail markets.
Wall Street bankers have seen the dangers facing unstable electric holding companies and their obsolete generating plants. Starting last May with Barclays Bank, major investment banks have been downgrading the bonds of the entire electrical generation sector because they can no longer compete with natural gas plants, investment in energy efficiency and renewable power.
Last week, the Institute for Energy Economics and Financial Analysis published an in depth report by WV’s own Cathy Kunkel describing exactly how and why Exelon wants to control a captive PEPCo Holdings for its own profit.
Also last week, the always entertaining and informative David Roberts provided an overview of the Exelon/PEPCo merger, plus some important history and context.
If you are interested in real electricity innovation in the US, you need to understand the massive forces that are arrayed against us. Understanding the newly hatched monopoly holding companies that control electricity in our country is essential for identifying who is resisting change and why they are doing it.
While the new holding companies still control most of the US electrical grid, they are becoming increasingly desperate as their market base erodes and their financiers get weak in the knees. These companies have become the enemies of the free market in electricity. Their only hope is to manipulate the political and regulatory process to maintain their slipping grip on power, as their industry association recommended back in 2013.
Look closely at the links in this post, and you will be able to see beyond the misleading information that pops up in the media (most of it from power company press releases) to see what is really at stake. As I have always said here on The Power Line, knowledge is power.