From the Holding Company Act to Competition: A Whole New Ball Game

Abstract

The development of American public utility policy throughout the 1900s shows the changing school of thought as to how best further marketplace efficiency. The idea which was favored in the first half of the century emphasizs economies of scale and is embodied in the Public Utility Holding Company Act of 1935. This act allowed the corporate affiliation of physically interconnected utilities if greater efficiency could be achieved through a "single integrated public-utility system." The ideology promoted in more recent years, fueled by antitrust law considerations, downplays the benefits of a single integrated system and purports that such side-by-side mergers create market power and reduce the vigor of competition in regional and other markets. Instead, it calls for utilities serving the same market to be considered competitors and this competition will promote efficiency in the industry. The antitrust outlook is widely embraced and may now preclude the 1935 Act. This transition reflects how the passage of time can affect policy prescriptions as well as how the advent of competition has significantly affected utility thinking.