Expanding Public–Private Partnerships in Electric
Railways: A Zero-Cost Conservative Proposal
By William S. Lind and Glen D. Bottoms
Prepared For
Copyright © 2012 American Public Transportation Association • 1666 K Street NW, 11th Floor, Washington, DC 20006
INTRODUCTION
Were we to go back to the America of one hundred years
ago - - something we , as conservatives, wish we could do - we would find that few Americans had automobiles. But
Americans of 1911 were very much on the move. People got
around cities, from countryside to city and from one city to
another. They did so easily, comfortably and frequently. How?
On railways.
While almost all intercity passenger trains were pulled by
steam locomotives - - some of which could hit 100 MPH - streetcars and interurbans were electrically powered. In fact,
the revolution in personal mobility began not with Henry Ford’s
Model T, but twenty years earlier with the combination of the
safety bicycle (the kind with two equal-size wheels, which was
the first bicycle clothes-constrained women of the era could
ride) and the electric railway.
With gas likely to be more expensive in years to come,
many of us wish we still had the thousands of miles of electric
railways we had then. What happened to them? How did we
become a country whose national motto seems to be “Drive or
Die?”
2
The answer, in a word, is government. For almost a
century, since the federal Good Roads Act of 1916, government
has consistently favored highways over railways. It built
government-funded highways (by 1920, government was
already subsidizing highways with more than a billion dollars a
year) at the same time that it taxed railways, virtually all of
which were privately owned and received no subsidies.
Conservatives know what happens when government subsidizes
one competitor while taxing another. We also know that the
inevitable result is not a free market outcome.
But that was not all government did to favor highways over
railways. In August, 1935, the Roosevelt Administration
succeeded in having Congress pass an obscure piece of
legislation that led to the demise of hundreds of electric railways
all over the country. Called the Public Utility Holding Company
Act of 1935, the law did not intend to have the effect it did on
streetcar and interurban lines. In fact, it seems Congress never
considered its possible effects on public transportation. But
when the Act’s disastrous impact on electric railways manifested
itself, neither the administration nor Congress seemed to notice.
They took no action to modify the Act. Quite the contrary, even
though the 1935 Act was modified in 1992 and replaced with
new legislation in 2005, our research indicates that some of the
provisions which did so much damage to electric railways remain
in effect today - -
with continuing consequences. Care to
3
guess how long legislation that had massive negative effects on
highways would remain on the books?
As conservatives, we know that a market economy requires
a level playing field. We also want to see private capital take as
large a role as possible in providing public services, including
transportation. In this study, we explore how the Public Utility
Holding Company Act of 1935 drove private capital out of the
electric railway business, and how finally addressing the Act’s
unfortunate consequences might re-open the door - - at no
cost, and with the prospect of considerable savings to the
taxpayer.
The Public Utility Holding Company Act of 1935
To understand why the 1935 Act had such disastrous
consequences for electric railways, we need to drop back a bit,
all the way to the 1890s when new electric streetcar lines and
interurbans were being built all over the country.
At that time, outside major cities, most homes and
businesses had no access to electric power. But streetcars and
interurbans ran on electricity. To generate the power they
needed, the interurban and streetcar companies built their own
electric power systems, with power plants where steam engines
turned electric generators, transmission lines that ran along the
4
whole rail line and substations to boost the power supply at
regular intervals.
Suddenly, outlying neighborhoods and towns did have
electric power. And because streetcars and interurbans did not
need all the electricity the generators could produce, the
companies began selling the surplus to homes and businesses.
The trolley industry played a significant (and often
unrecognized) role in electrifying America.
As the demand for power grew and electric railways
provided it, many companies changed. They became both
power companies and electric railways. Their names often
reflected this, e.g., The Milwaukee Electric Railway and Light
(TMER&L) Company. Over time, the electric utility business
became the larger part of what they did - -
and of their
revenues. By the 1920s and early 1930s, the profits from
selling electricity were cross-subsidizing the electric railways,
which had in many cases become money-losers - - thanks to
competition from government-funded highways.
The 1935 Act prohibited such cross-subsidization. Indeed,
the Act forced the integrated transportation and electric power
companies to choose: they could be one or the other but not
both.
5
The law, also known as the Wheeler-Rayburn Act, was
passed in August, 1935 and most provisions went into effect on
January 1, 1938. Considered a crowning achievement of
Roosevelt’s New Deal, the Act was a reaction to the abuses that
some public utility holding companies had perpetrated in the gogo 1920’s and the hard crash they (and their numerous
stockholders) suffered during the Great Depression. Fifty-three
public utility holding companies went bankrupt - - of which the
Samuel Insull empire, owner of numerous interurban lines, was
the most notable - - and twenty-three others defaulted on
interest payments.1 In the failure of the Insull empire alone,
600,000 investors lost their life savings.
The law sought to safeguard the financial health of public
utilities. Many of the public utility holding companies that failed
had engaged in risky behavior, owning or investing in tempting
business ventures around the world which had nothing to do
with their core business, generating and selling electric power.
The Act required each utility holding company to limit its
operations to a single integrated public utility system
(generating, distributing and selling electric power) operating
within one state or in contiguous states. It also prohibited
cross-subsidization within pubic utility holding companies.
As the Act was interpreted by the Securities and Exchange
Commission (SEC) and upheld by the courts, this required that
6
public utilities choose between their profitable electric power
operations and their often money-losing electric interurban
railways and streetcar systems. It appears that Congress, in
considering the legislation, did not even think about the
potential effects of the proposed law’s provisions on electric rail
transit properties. Indeed, as recently as 1993, a
comprehensive study of the Act by the Energy Information
Administration failed to mention the effects of the law on public
transportation.
David St. Clair, in his seminal work, The Motorization of
American Cities, estimated that the Act’s consequences in some
way impacted 50 percent of transit companies carrying about 80
percent of total revenue passengers in 1931.2 The number of
public utility holding companies declined from 216 in 1938 to
just 18 in 1950.3 Within those that remained, the internal
cross-subsidies that had kept many electric railways alive were
no longer allowed. Over a hundred electric railways, both
interurbans and streetcar systems, closed down or were sold for
a song. Once sold, streetcar companies lost access to fresh
capital from the parent utility company and suffered a
demoralizing drain of choice managerial talent, which reverted
to the parent utility company when the streetcar company
assets were sold.4
7
A former executive with Ohio’s largest electric utility,
American Electric Power, tells the story:
The Holding Company Act dramatically changed the
landscape for utilities with the requirement that the
systems had to be interconnected and contiguous.
This Act required American Gas and Electric (now
AEP) to sell properties in Atlantic City and Scranton,
PA and focus on its properties in the Midwest. It also
required that Holding Companies could only own
properties that were useful in the generation,
transmission and distribution of electrical energy.5
Electric railways did not meet that test.
In 1922, America had 28,906 miles of street railway
track. By 1950, that number had declined to 8,071, a
72% decrease.6 In 1930, Americans traveled on 55,150
streetcars. By 1950, only 13,288 were left.7 The Public
Utility Company Holding Act was not the only reason for
that dramatic decline, but it was a major contributor.
While government actions that favored highways
over public transportation were the major driver of
today’s automobile dominance, the 1935 Act also opened
the door for the auto industry to slip in the knife. When
the Act forced public utility holding companies to get rid of
their electric railways, many chose to sell rather than
abandon them. The prices they asked were often pitifully
8
low, reflecting not the value of the electric railways’
service to the public but the fact that few had made a
profit in years.
General Motors had actually begun financing buyouts
of rail transit properties in small and medium-sized cities
as early as 1930. In 1936, the automobile industry as a
whole, represented by General Motors, Firestone Rubber,
Standard Oil and Phillips Petroleum, banded together to
form their own holding company, National City Lines
(NCL), and associated affiliates/subsidiaries [American
City Lines- ACL; and Pacific City Lines- PCL]. NCL moved
quickly to buy up many small and medium-sized electric
railways and convert them to buses. Numerous electric
railways were destroyed in this manner.
The purpose was not to sell buses (although acquired
properties were required to purchase GM-manufactured
buses) but to sell cars. GM and its allies knew that the
quality of service provided by buses did not approach that
given by electric railways so that most people, if faced
with riding a bus, would opt to buy a car instead.
Of course, while the holding companies that had kept
so many electric railways alive were outlawed, National
9
City Lines, also a holding company, faced no such
restrictions.
A Case Study
Ironically, one of the victims of the Act was the city where
it was passed, our nation’s capital. After the 1935 merger of the
two main streetcar companies in Washington, DC, the local
transit company that emerged, Capital Transit, was owned by
the North American Company, a public utility holding company.
The North American Company controlled 80 corporations
engaged in a variety of activities besides generating electric
power, including amusement parks and coal mines.8 North
American ownership of Capital Transit was realized through the
wholly owned Washington Electric Railway Company which
owned 50% of Capital Transit and 100% of the Potomac Electric
Power Company (PEPCO).9 PEPCO supplied electric power to the
District of Columbia and parts of the Maryland suburbs.
North American sought relief in the courts from the Act,
claiming that the SEC’s ability to confine the company’s
operation to a single integrated utility amounted to a taking
without proper compensation. The Supreme Court eventually
upheld the Act, ruling in 1946 that North American would have
to divest itself of its extensive holding of power companies and
other enterprises across the country, including Capital Transit.10
10
It was widely known at the time that the North American
Company was dedicated to making transit in the nation’s capital
a showcase, and the operation was acknowledged as one of the
premiere transit properties in the country. Capital Transit was
also profitable.
Unfortunately, to comply with the Supreme Court ruling,
North American was to unload Capital Transit in 1948 to a
business consortium led by Louis Wolfson, who proved to be a
rather unscrupulous but shrewd entrepreneur. Wolfson bought
control (46.5% of outstanding shares) of Capital Transit for
$2,189,160. After the lush war years, Capital Transit had
amassed a bulging reserve of some $6 million, a tidy sum in
that day.11 Running a viable transit system was not a high
concern for Wolfson. Milking the company certainly was. His
main objective was to relieve the company of its liquid assets,
which he did quite efficiently, paying himself and his associates
exorbitant dividends through 1955. As Wolfson diverted funds
from operating necessities, service was cut and ridership
predictably fell. Annual revenues declined commensurately.
Moreover, his requests for fare increases were turned down by
the DC Public Utility Commission, well aware of the generous
dividends he was paying. Wolfson’s greed led to further service
cuts and defiance in the face of not unreasonable wage demands
11
by the local transit union. A long, 55-day strike ensued,
enraging the public and eventually Congress.
Due to Wolfson’s inability or unwillingness to settle the
strike, Congress stepped in and revoked Wolfson’s charter to
operate the company. After a bumpy search for potential
buyers, one was located and the company was sold in 1956 to
an ebullient entrepreneur by the name of O. Roy Chalk.
The new charter drawn up by Congress required Chalk to
replace the streetcars with buses within a seven year period.
Chalk unsuccessfully fought this provision. He even offered to
establish a rapid streetcar service along Georgia Avenue at his
own expense (which would have been a precursor to
Washington’s Metro, built with government money).12 The
streetcar system had received considerable rebuilding after the
merger of 1935 and thus had significant economic life left.
Moreover, the streetcars were profitable, serving the heaviest
volume lines in the city. The operation was also completely
equipped with modern PCC streetcars (named after the
Presidents Conference Committee), many of which were only 12
years old when Chalk acquired the company.
The fact that he was unsuccessful in removing this
requirement is a testament to the forces arrayed against him
and the streetcar, including the DC Department of Highways,
12
the national highway lobby and their Congressional allies, and,
alas, The Washington Post. One cartoon in The Post pictured
the Washington streetcar with the caption, “A Tough Dodo.”
Motorists may not have liked Washington’s streetcars but
they moved people efficiently, comfortably and profitably. They
were popular with the transit-riding public. Predictably, when
the streetcars were phased out, transit ridership in the District
took a slow downward turn.
To see why, one need look no further than Route 20, which
ran from downtown Washington northwest along the Potomac
River to Cabin John in suburban Maryland (serving the historic
Glen Echo amusement park along the way). This route provided
a comfortable, fast means for getting downtown. Blessed with a
bucolic, reserved right of way from the Cabin John terminus to
the (then) outskirts of Georgetown University, the streetcar was
a popular way to access work, shopping and entertainment
activities.
Once the streetcar line was abandoned in early January,
1960 as Mr. Chalk grudgingly complied with the Congressional
edict, anecdotal evidence indicates that residents along the line
either added a second car or bought an automobile for the first
time. The replacement bus line was no match for the speed,
13
comfort and neighborhood binding characteristics of the
streetcar.
Washington’s streetcar and bus ridership declined from
177.2 million passengers in 1957 (the last year before the
streetcar abandonments commenced in full force) to 144.5
million passengers carried by an all-bus system in 1962, a
decrease of some 18%.13 Subsequent declines were even
steeper and ridership cratered after the 1968 riots that followed
the assassination of Dr. Martin Luther King, Jr. With the final
abandonment of streetcars in Washington on January 28, 1962,
the nation’s capital became an all-bus city. It remained so until
the advent of Metro’s first rail operating segment in 1976.
The Act Today
The Public Utility Holding Company Act of 1935 was
repealed in 2005 and replaced with the Energy Policy Act, parts
of which are sometimes referred to as PUHCA 2005. Where
does that leave utilities that might want to invest in electric
railways? Our research indicates that the answer is ambiguous.
Some people think PUHCA 2005 imposes essentially no
restrictions on public utility holding companies. Bill Lhota,
President/CEO of the Central Ohio Transit Authority, writes:
14
With the repeal of the (1935 Public) Utility Holding
Act, utilities can do just about anything they want to.
It would have to make business sense but if AEP
(American Electric Power) wanted to purchase or
start a transit company, they are permitted to do so.
They would have to set it up as a subsidiary of the
parent holding company. There are laws that would
prohibit direct cross subsidization from a regulated
utility but as long as the dividends are paid up to the
holding company, the holding company could use the
funds as they see fit.14
That seems simple and straightforward. But as is
usually the case with laws and government regulations,
the devil is in the details.
While PUHCA 1935 was repealed, the rules and
regulations stemming from it were not. PUHCA 2005
transferred oversight over utility holding companies from
the Securities and Exchange Commission (SEC) to the
Federal Energy Regulatory Commission (FERC).
According to a 2006 study by the Congressional Research
Service,
FERC also determined that Section 1275(c) of the
Energy Policy Act . . . was a “savings clause” which
did not give the Commission the authority to issue
regulations on previously regulated activities. As a
result, FERC declined to issue further regulations on
holding company system cross-subsidization,
encumbrances of utility assets, [or] diversification
into non-utility businesses . . .15
15
Many of the negative effects on electric railways that
stemmed from the 1935 Act were not the result of
legislative language but of subsequent court and
regulatory rulings. Does this “savings clause” leave some
of the rulings or regulations in effect, with the FERC
unable, in its own view, to modify or repeal them? The
answer is unclear. In a February, 2006 analysis of the
then-new Energy Policy Act, the law firm of Winston &
Strawn wrote,
While investors can take advantage . . . of the
EPAct 2005 and related rulemaking in structuring
new transactions, the regulatory scheme remains
complex, and there are traps for the unwary.16
A major potential trap lies in the prohibition of crosssubsidization by utilities of non-utility associates, a
provision of PUHCA 1935 that was carried over in PUHCA
2005. That prohibition was what killed many utilityowned electric railways in the 1930s.
To a layman, defining cross-subsidization seems
simple: the utility is not allowed to give money to an
associated electric railway to make up operating deficits,
as many utility holding companies were doing before the
1935 Act. In fact, what the 2005 Act comprehends as
cross-subsidization is much broader, to the point where it
16
could inhibit utilities from getting back into the electric
railway business.
The same Winston & Strawn brief notes that under
PUHCA 2005,
FERC must determine whether proposed transactions
will result in cross-subsidies of non-utility associate
companies, or pledges or encumbrances of utility
assets and, if so, whether the cross-subsidy or pledge
or encumbrance is consistent with the public
interest.17
Whenever a regulatory body is given authority to act
on the basis of “the public interest,” rulings become
unpredictable. A 2008 FERC press release quoted FERC
Chairman Joseph T. Kelliher as saying,
Since Congress expanded our merger and corporate
review authority (in the 2005 Act) we have sought to
discharge our statutory duty to prevent the
accumulation and exercise of market power and
guard against improper cross-subsidization, . . .18
What might be ruled “improper” cross-subsidization?
Our analysis suggests it might include providing capital
funds from the utility to help construct an electric railway.
The Winston & Strawn brief states,
With respect to intra-holding company finances and
cash management programs, FERC requires
17
applicants to adopt safeguards, including any cash
management controls (such as restrictions on
upstream transfers of funds, ring fencing, etc.) to
prevent any cross-subsidization between holding
companies and their new subsidiaries.19
Could providing capital up-front to build an electric
railway be ruled an upstream transfer of funds within an
intra-holding company financing? Maybe.
PUHCA 2005 opened another can of legal worms at
the state level. A 2006 brief on the new Act by the law
firm Mayer Brown notes that
PUHCA 2005 also provides [state] PUCs with access
to the books and records of holding companies, but
only to the extent relevant to the costs of
subsidiaries that are public utilities. Many industry
observers believe that PUCs may rush in to fill a
perceived vacuum created by the repeal of PUHCA.
These observers believe that PUCs will react to the
loss of both extensive regulation of registered
holding companies by the SEC and, equally
important, the restrictions that exempt holding
companies had to accept to maintain their
exemptions . . . PUCs can be expected to much
more aggressive in the search for potential crosssubsidization by utilities of non-utility affiliates.20
A long analysis of the post-2005 legal situation in the
Lewis and Clark Law Review, “The Urge to Merge: A Look
at the Repeal of the Public Utility Holding Company Act of
1935” by Nidhi Thakar, date August, 2008, updates this
18
issue and finds that states intend to use this loophole to
full advantage. The article notes,
As state commissions discover the regulatory gaps
created by the repeal of PUHCA, we can expect
states to . . . recreate the PUHCA regulatory model
on a state level. State commissions have expressed
concerns that, post-PUHCA, there is the potential for
a variety of abuses by holding companies. Some of
these abuses include utility company crosssubsidization of affiliate company transactions; . . .
In response, many states have already enacted new
statutes replacing regulatory oversight originally
provided by PUHCA. California, Kansas, Maryland,
Arkansas, and New Jersey are just a few of those
states . . .Arkansas . . .enacted new statutes to
prevent cross-subsidization between regulated public
utilities and non-regulated affiliates that provide
non-utility services. The rules prohibit utilities from
providing or sharing financial resources, such as
loans, extensions of credit, assumption of debt, and
indemnification of affiliates, with unregulated
utilities. Utilities are also restricted from incurring
debt for any business other than regulated utility
service in the state.21
What all this adds up to, as we suggested at the
outset, is ambiguity. A utility’s legal department, if asked
whether the company were in the clear to invest in an
electric railway, might say, “We aren’t sure.” That could be
enough to kill the investment. As conservatives, we have a
problem with that. We want electric railways to be able to
draw on every possible source of private financing.
19
The Private Funding Option
Unlike bus lines, streetcar and light rail lines (and
prospectively interurbans too) can attract private capital.
The reason is simple. Electric railways raise property values in
the areas they serve. Bus service has no such effect.
The ability of streetcars to spur development can be
observed in Washington, DC. One of the central components of
developing the H Street, NE corridor in that city is a streetcar
line (now in the final throes of construction). Developer after
developer has cited the coming streetcar line as one of the
reasons they decided to invest in the corridor. The same
phenomenon is evident along the route of the proposed
Cincinnati streetcar. In Portland, Oregon, where the streetcar
renaissance began, almost $3 billion in development (within
three blocks of the line) can be attributed to the presence of the
Portland Streetcar (now carrying over 12,000 patrons each
weekday).
A recent study released by the Washington, DC
Department of Planning found that the proposed 37 mile
streetcar system for the District would generate between $10 $15 billion in benefits (new development, increased property tax
collections on more valuable land, etc.).22
20
Property owners know this, and they are often willing to
help pay for the line that will benefit them. Businesses along
the streetcar or light rail line also benefit, because they get
more customers. They, too, can be a source of private funding.
This isn’t just theory. It is already happening. Take, for
example, the 1.3 mile South Lake Union streetcar line in Seattle,
WA, opened in 2007 at a cost of $47.5 million. Private
investment was critical in securing the funding for the line.
Property owners adjacent to the line created a Local
Improvement District (LID). Through this device, property
owners successfully raised $25 million of the cost, more than
half.23 It proved to be money well spent. The streetcar has
spurred $2.4 billion in private investment within roughly three
blocks of the line, and created 12,000 permanent jobs.
Private enterprise can also help provide operating funds for
new electric rail lines. The Seattle streetcar receives some
proceeds from the bulk purchase of transit passes by private
companies and from the sale of streetcar sponsorships (naming
rights for vehicles and stations) and uses them to help defray
operating expenses. The Tampa Electric Company (TECO)
streetcar receives its operating funds from a private endowment
set up for this express purpose. Funds for the endowment were
raised from the sale of naming rights for the system, the
stations and the streetcars. At present, the yield from the
21
endowment is down dramatically, reflecting the state of the
economy. The drop necessitated a reduction in operating hours
(and a regrettable but unavoidable use of a portion of the
endowment principal). Nevertheless, the concept is a good one.
An endowment or similar instrument can fund all or a portion of
a system’s operating cost.
Another source of private funding for streetcar, light rail
and interurban lines might be the same people who invested in
them during the first trolley era: real estate developers. Many
cities’ present shape - - including that of Los Angeles, the
nation’s car capital - -
is what it is because real estate
developers built electric railways from the downtown to vast
undeveloped tracts which they owned. Sometimes the electric
railway made them money, and sometimes it didn’t (usually it
did). But they made fortunes by developing real estate the
streetcar or interurban served.
Today, real estate developers get government to build
roads to serve their new developments. As conservatives, we
like the idea of developers paying for that service themselves
rather than handing the bill to the taxpayers. In an era of rising
gas prices and increasing traffic congestion, a developer who is
smart enough to go back to the future and offer prospective
homeowners electric rail service might make a handsome profit
from higher prices on his houses.
22
This brings us back to the subject of our paper: the
relationship between electric railways and electric power
companies. We think electric utilities could again be a source
for funds for building and possibly for operating electric railways
--
if the remains of the Public Utility Holding Company Act of
1935 were not stopping them.
The tip of the iceberg is already showing. Duke Energy,
the supplier of electric power to the city of Cincinnati, Ohio, has
contributed about $3 million to the capital cost of Cincinnati’s
planned streetcar line. Duke Power’s motive appears to have
been helping to secure a rate increase, but it is still a signpost
pointing to a possible future.24
Another signpost comes from a study done for the Central
Ohio Transit Authority (COTA), which runs the transit system
(now all-bus) in Columbus, Ohio. The study, done in 2009,
states:
In January 2009, William J. Lhota, President/CEO of
the Central Ohio Transit Authority, created the Fixed
Guideway Electrical Systems Study Committee
(Committee) for the purpose of studying the
feasibility of investor owned utilities owning,
operating and maintaining the electrical systems
used to power fixed guideway transit facilities. . .
The Committee concludes that it is possible for
investor owned utilities to own, operate and maintain
23
the electrical systems used to power fixed guideway
transit facilities; . . .25
The Committee concludes that the public-private
partnership studied by the Committee is an
incredibly novel idea that is quite possible.26
In fact, the idea is not quite so incredibly novel as the
Committee thinks. In New Orleans, America’s oldest rail transit
line, the St. Charles Avenue line (which dates back to 1835)
does something similar. New Orleans Public Service, Inc.
(NOPSI), the local electric utility, now known as Entergy New
Orleans, maintains the overhead and manages the power
distribution system for the St. Charles line (and its venerable
Perley Thomas streetcars built in 1923) as well as New Orleans’
other two streetcar lines, Canal and Riverfront.
Obviously, if electric utilities are to get back into the
electric railway business, they would do so with the expectation
of making money (Entergy New Orleans does make money off of
its contract with New Orleans’ Regional Transit Authority, owner
and operator of the three streetcar lines). Bill Lhota of COTA
recently wrote to the American Public Transportation Association
(APTA):
I think the profit motive will make transit
opportunities viable for investor owned utilities. But,
to assist transit companies, changes should be made
in the law to allow utilities to sell tax exempt bonds
for transit projects, not to pay sales tax on
24
purchases for transit projects, permit utilities to
receive Federal Transit Administration grants and
other incentives that make it more attractive for
electric utilities to own, construct, operate and
maintain electric infrastructure.27
Other measures that could entice electric utilities back
into the electric railway business include:
o As conservatives, we are against carbon emission
taxes. But utilities could be given “green” tax credits
for building and operating electric transit lines, which
reduce pollution from automobiles. Such credits would
make even more sense if the electricity for the transit
line came from renewable resources - - as it already
does in Calgary, Canada, where all the power for the
city’s light rail system comes from wind turbines.
o In return for capital cost contributions from utilities,
offer long-term contracts to provide electricity for
streetcar and light rail operations.
o Tie other city government power contracts to helping
pay for the electric rail system. In most places,
customers can choose among power suppliers, and city
governments are customers.
25
That, in fact, is the main reason electric power companies
would want to get back into the electric railway business: to
sell more electricity. That is how they make their money.
However, so long as the ghost of the Public Utility Holding
Company Act of 1935 hovers over the scene, no electric power
company is likely to get back into the electric railway business.
What utility’s board of directors would dare vote to do so when
their legal department tells them they might be subject to legal
or regulatory action?
So we conclude this paper with a conservative plea: will
Congress please remove this roadblock dating back almost
seventy-five years and let power companies back into the
electric railway business? It costs nothing to do so. All it
takes is a bit of legislative language. For that zero-cost input,
we might be able to save the taxpayer hundreds of millions of
dollars, even billions over time. What could be more
conservative, or just common-sensical, than that?
26
Selected References
Bloom, David I. “Repeal of the Public Utility Holding Company
Act of 1935 – Will the States Rush In?” Mayer Brown
Publications, January, 2006.
District of Columbia Office of Planning. Streetcar Land Use
Study- Phase One. Washington, DC: January, 2012. Accessed
at:http://planning.dc.gov/DC/Planning/Planning%20Publication
%20Files/OP/Citywide/citywide_pdfs/FINAL%20for%20Web_Scr
een%20View.pdf
Federal Energy Regulatory Commission. Fact Sheet: Energy
Policy Act of 2005. August 8, 2006.
Federal Energy Regulatory Commission. Federal Energy
Commission News: FERC Acts to Strengthen Cross-Subsidization
Rules. Washington: Federal Energy Regulatory Commission,
February 21, 2008.
Fixed Guideway Electrical Systems Study Committee. Final
Report: Public-Private Partnerships. Central Ohio Transit
Authority, July, 2009.
Fogelson, Robert M. Downtown: Its Rise and Fall, 1880-1950.
New Haven: Yale University Press, 2001.
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Endnotes
1
Philips, Charles F. The Regulation of Public Utilities, Theory and Practice. Public Utility
Reports, Inc.. Arlington, VA, 1993, p.239.
2
St. Clair, David J. The Motorization of American Cities. Praeger Publishers, New York, 1986,
p.110.
3
Hirsch, Dr. Richard. Emergence of Electric Utilities in America.” From Smithsonian Institute
Exhibit “Powering a Generation of Change. <www.americanhistory.si.edu/csr/powering/>
4
Op Cit, St. Clair, p. 111.
5
Lhota, William H., President/CEO, Central Ohio Transit Authority, e-mail to authors, June 7,
2011.
6
Op Cit, St. Clair, p. 8.
7
Post, Robert C. Urban Mass Transit: The Life Story of a Technology. Westport, CT,
Greenwood Press, 2007, p.111.
8
Energy Information Administration. Public Utility Holding Company Act of 1935: 1935 – 1992,
Washington, DC, January, 1993, p. 11.
9
Marsh, Charles F., “The Local Transportation Problem in the District of Columbia,” The Journal
of Land & Public Utility Economics, August, 1934, Vol. 10, No. 3, p. 277.
10
U. S. Supreme Court, “North American Co. v. Securities and Exchange Commission, 327 U.S.
Code 686 (1946),” Findlaw For Legal Professionals. < http://caselaw.findlaw.com >
11
“Strike Against Wolfson,” Time Magazine, Monday, July 18, 1955.
<www.time.com/time/magazine/article/0,9171,866517,00.html>.
12
This was predictably opposed by the DC Department of Highways. Kohler, Peter C., Capital
Transit: Washington’s Streetcars: The Final Era: 1933 – 1962 (Colesville, MD, National
Capital Trolley Museum, 2001) p. 165.
13
Ibid, Kohler, p. 417.
14
Lhota, William H., President/CEO, Central Ohio Transit Authority, e-mail to authors, August 9,
2011.
15
Vann, Adam. “CRS Report for Congress: The Repeal of the Public Utility Holding Act of 1935
(PUCHA) and its Impact on Electric and Gas Utilities.” Washington, DC: Congressional
Research Service-Library of Congress, November 20, 2006, p. 6.
<http://wiki.umn.edu/pub/ESPM3241W/S11PolicyBriefTeamTwentyfour/CRS_Report_for_Co
ngress.pdf >
30
16
Winston and Strawn, LLP, “Briefing: Energy Practice- FERC Regulation of Transactions after
the Energy Policy Act of 2005,” February, 2006, p.1.
17
Ibid, Winston and Strawn, LLP, p. 6.
18
Federal Energy Regulatory Commission News: FERC Acts to Strengthen Cross-Subsidization
Rules,” Washington: Federal Energy Regulatory Commission, February 21, 2008.
19
Op Cit, Winston and Strawn, p. 7.
20
Bloom, David I., “Repeal of the Public Utility Holding Company Act of 1935- Will the States
Rush In?” Mayer Brown Publications, January 2006.
< http://www.mayerbrown.com/germany/article.asp?id=2552&nid=495 >
21
Thakar, Nidhi, “The Urge to Merge: A Look at the Repeal of The Public Utility Holding
Company Act of 1935,” Lewis and Clark Law Review, August 30, 2008, Vol. 12-3, pp.937938. < http://lawlclark.edu/live/files/9o522-lcb123art11thakar.pdf >
22
DC Office of Planning, “Streetcar Land Use Study- Phase One,” Washington, DC: January,
2012, p. 10.
http://planning.dc.gov/DC/Planning/Planning%20Publication%20Files/OP/Citywide/citywide_
pdfs/FINAL%20for%20Web_Screen%20View.pdf>
23
City of Seattle, Office of Policy and Management, “South Lake Union Streetcar: Capital
Financing and Operating and Maintenance Plan,” Seattle, WA: April 13, 2005.
24
Business Courier of Cincinnati, “Duke Energy to Help Finance Cincinnati Streetcar Initiative,”
October 29, 2008. < http://bizjournals.com/cincinnati/stories/2008/10/27/daily32.html >
25
Fixed Guideway Electrical Systems Study Committee, “Final Report: Public-Private
Partnerships,” Central Ohio Transit Authority (COTA), July, 2009, p. ii.
26
Ibid, Fixed Guideway Electrical Systems Study Committee, p. 6.
27
Lhota, William H., President/CEO, Central Ohio Transit Authority, e-mail to APTA, June 7,
2011.
31