Ring-fencing after the subprime meltdown.
Scott Strauss and Peter Hopkins are partners in the law firm of Spiegel & McDiarmid LLP. They were retained by the Office of the Maryland Attorney General and the Maryland Energy Administration to assist in the Attorney General’s representation of the State before the Maryland Public Service Commission in In re Balt. Gas & Elec. Co., Case No. 9173. This article represents their views and not necessarily those of the Office of the Maryland Attorney General or the Maryland Energy Administration.
History teaches that the combination and affiliation of regulated and unregulated corporations, particularly under the common ownership of a holding company, poses difficulties for regulatory commissions and, if unaddressed, significant and adverse consequences for utility companies and their customers. “In 1924, 74.6 percent of all electricity generated in the United States was produced by operating companies which were parts of holding companies; by 1930, 90 percent of all operating companies were controlled by 19 holding companies.”1 The collapse during the Great Depression of the highly leveraged Insull empire and numerous other utility holding companies precipitated the creation of the Public Utility Holding Company Act of 1935 (1935 Act). The utility holding company structure was criticized for pyramiding2 and an attendant highly-leveraged corporate structure, a write-up of securities and capital assets, the abuse of affiliated transactions, and spending sprees to limit or eliminate competition.3 Among other things, the 1935 Act served to limit utility holding companies from engaging in regulated and unregulated businesses.