The Public Utility Holding Company Act (PUHCA) of 1935 was enacted to discourage dishonest business practices of large-scale utility holding companies throughout the 1920s and 30s. These large holding companies had only a few investors who controlled the shares of several subordinate utility companies. Therefore, having only a few holding companies with the means to control half of the utility industry brought about various problems in the industry. Although utilities are traditionally natural monopolies, they are still regulated by state and federal governments that protect consumers by ensuring low electricity prices and efficient operation; PUHCA enables governments to have such authority. Governments can regulate business practices that would weaken the stability of the utility company, increase consumer rates, or harm the environment. PUHCA also prevents utility holding companies from funding unregulated business activities with profits acquired by regulated business activities.
- The Public Utility Holding Company Act: Background (Union of Concerned Scientists)