The Public Utility Holding Company Act led to the restructuring of the public utility industry by reducing the size and power of the giant holding companies that had dominated it. Part of the Second New Deal of 1935, the legislation (also known as the Wheeler-Rayburn Act, after its principal congressional sponsors, Senator Burton K. Wheeler of Montana and Representative Sam Rayburn of Texas) did not go as far as President Franklin D. Roosevelt had desired. It was nonetheless one of the most significant antimonopoly efforts of the New Deal and part of its increased regulation of business.
The public utility (electric power) industry had attracted many critics and foes by the 1930s. The industry was dominated by a small number of large holding companies that owned local operating companies, often in complicated, multistate organizational structures. Reaping large profits from the local companies by selling them management services and receiving their stock dividends, the holding companies typically proved unresponsive to improved, cheaper, or expanded electrical service and avoided state regulation. Their reluctance to extend operations into rural areas caused Roosevelt to create the Rural Electrilication Administration in May 1935.
Roosevelt and other members of his administration thought the utility industry was perhaps the most egregious example of harmful monopoly power. If the holding company pyramids could be leveled, the local operating companies could be more responsive and less expensive. The president sent Congress a bill that would give the Securities and Exchange Commission (SEC) power to dissolve after January 1, 1940, any holding company that could not justify its existence in terms of economic efficiency and geographical integration.
The utility industry and its lobbyists put enormous pressure on Congress to defeat the bill, and especially its “death sentence” clause requiring the dissolution of holding companies that could not justify their existence. After a fierce battle, the Senate approved the bill with the death sentence clause by just one vote in June. In July the House defeated the death sentence clause but passed the rest of the bill. In August, Congress agreed upon a revised bill that eliminated holding companies more than twice removed from operating companies but required the SEC to justify dissolving other utility holding companies.
The Public Utility Holding Company Act seemed to many a modest victory for the Roosevelt administration, because the initial “death sentence” had been defeated. But the legislation did significantly expand the regulatory power of the government over public utilities, even though the big companies fought it in the courts and the SEC made slow progress in rationalizing the industry. Eventually the law had a real impact on the structure of the electric power industry, and companies that were reorganized and geographically integrated were typically the stronger and more profitable for it.
Further reading: Philip Funigiello, Toward a National Power Policy: The New Deal and the Electric Utility
Industry (Pittsburgh: UniversityofPittsburghPress, 1973); Michael E. Parrish, Securities Regulation and the New Deal (New Haven, Conn.: Yale University Press, 1970).
World History
