Lawmakers Call SEC on Carpet Over Utilities

The story of how regulators allowed once-safe utilities to become high-risk investments could soon be told in Washington.

By the end of this week, the Securities and Exchange Commission is expected to respond to more than 50 pointed questions from federal lawmakers about its enforcement of the Public Utility Holding Company Act of 1935. The agency has come under fire for liberally exempting companies from a regulation that industry insiders -- and even the SEC itself -- have long pushed to abolish altogether.

The law restricts geographic expansion and risky outside investments by public utility companies. But industry leaders have spent the past two decades portraying the measure as a throwback that has long outlived its usefulness, one that hinders capital investment in the utility sector.

Indeed, some experts believe that up to $1 trillion could pour into the industry if PUHCA, originally designed to bust up abusive monopolies, were repealed. Berkshire Hathaway (BRK.A Quote), led by legendary value investor Warren Buffett, has, by itself, pledged to invest $10 billion in the sector if the PUHCA restrictions are lifted.

Last year, PUHCA opponents nearly eliminated the law in a sweeping energy bill that failed to pass in the end. Even so, many companies -- including Enron -- have simply found their way around the PUHCA restrictions with the blessing of the SEC.

In a scathing report last year, the American Public Power Association blamed the SEC for enabling the utility industry downturn. Specifically, the association says that SEC regulators have exercised "nonexistent" enforcement of PUHCA since a 1992 partial repeal of the law began allowing utilities to expand into riskier deregulated businesses. As a result, the group claims, the SEC has failed in its duty to protect the public.

"The Enron story is an excellent illustration, as its dramatic rise has been revealed as a fraud ... and its collapse wiped out the retirement savings of utility employees and other investors," the group stated in a detailed argument aimed at strengthening, rather than eliminating, PUHCA enforcement. "However, Enron is not a unique, or even unusual, case -- just the first and most spectacular example."