February 26, 1970
Page 5013
UTILITY CONSUMERS' COUNSEL ACT, S. 607 – SUMMARY OF THE HEARINGS
Mr. MUSKIE. Mr. President, under the very able direction of the Senator from Montana (Mr. METCALF), the Subcommittee on Intergovernmental Relations held some 21 days of hearings last session on S. 607, the Intergovernmental Utility Consumers' Counsel Act of 1969.
This proposed legislation is designed to provide a greater opportunity for consumers of electricity, gas, and telephone services to be presented before Federal, State, and local regulatory agencies, and to be informed as to financial and operating policies of the companies providing such services.
Because of the broad range of facts and statistics developed by the hearings on S. 607, and the importance of the issues raised by the legislation, I asked Senator METCALF to have prepared a summary of the testimony for the benefit of subcommittee members in their consideration of S. 607.
I feel that this summary will be of special interest to other Members of Congress who may have a special concern for the interests of utility consumers; accordingly, I ask unanimous consent that it be printed in the RECORD.
There being no objection, the summary was ordered to be printed in the RECORD, as follows:
S. 607: UTILITY CONSUMERS' COUNCIL ACT OF 1969 – BACKGROUND OF LEGISLATION AND SUMMARY OF HEARINGS
DECEMBER 1969
BACKGROUND OF THE LEGISLATION
In 1966 the Subcommittee on Intergovernmental Relations sent questionnaires to each of the State utility commissions. A summary and tabulation of the information submitted by the commissions was published in 1967. (90th Congress, 1st Session, Senate Document 56, "State Utility Commissions.")
In the introduction to Senate Document 56, Subcommittee Chairman, Edmund S. Muskie stated:
"An area of governmental activities in which responsibility is divided among the several States and between the States and the Federal Government is the regulation of utility companies. Here, as in other areas of public responsibility, facts are vital to the development of sound public policy. There has, however, been lacking any comprehensive and organized body of knowledge regarding the State commissions charged with regulation of utilities, the authorities under which they operate, their organizational resources, and the range of their responsibilities and functions .
"This compilation is intended to assist Federal and State legislators and members of regulatory agencies, as well as others associated with the regulated industries. It is hoped also that it will be of assistance to students of government and public administration."
The information in Senate Document 56 is categorized as follows:
I. The Commission
II. The Commission Staff
III. Commission Organization
IV. Annual Budget of the Commission
V. Commission Jurisdiction
VI. Appeal from Commission Decisions
VII. Policies of State Utility Commissions on Inclusion of Various Items in Rate Base
VIII. Questionnaire to State Regulatory Commission
IX. Footnotes
Fifty-seven commissions were queried. Some states have two or three commissions, and the District of Columbia and Puerto Rico were included in the survey. Two commissions did not respond.
Annual expenditures for fifty-two commissions totaled approximately $50 million. One state spent $9 million, another $5.7 million, 11 other states more than $1 million. Twenty-seven states spent less than $500,000, including three below $100,000.
The survey showed that most state commissions were charged with regulation of dozens, and in many cases hundreds, of electric, gas, telephone, telegraph and water companies, in addition to hundreds, and in some cases thousands, of transportation utilities or carriers.
The survey also showed that from twenty to thirty of the commissions had two or fewer employees in the following key categories: attorneys, rate analyst, engineer, accountant. More than half of the commissions had no security analyst. Five of the States had one or more economists on their staff. Relatively few professional staff members received salaries above $11,000 annually.
On February 6, 1968, Senator Metcalf, joined by Senators Aiken, Gruening, Kennedy of Massachusetts, Kennedy of New York and Nelsen introduced S. 2933, the Intergovernmental Utility Consumers' Counsel Act of 1968. The bill would "modernize regulation of the major electric, gas, telephone and telegraph utilities," said Senator Metcalf in his introductory remarks, and had four principal objectives:
"1. To require the utilities to report to regulatory bodies certain additional information which is pertinent to regulation and to public understanding of utility rates and procedures;
"2. To require the Federal Power Commission and Federal Communications Commission to report this and other information to Congress and the public in a timely and convenient manner, using automatic data processing to the fullest possible extent;
"3. To establish, at the Federal, State and local levels, offices of Utility Consumers' Council, to represent the interests of utility consumers before regulatory commissions; and
"4. To establish a grant program to finance study of regulatory matters."
"The bill will not work hardship on any utility," he said. "It is designed to provide utility consumers the tools to obtain fair rates."
Senator Metcalf reintroduced the bill, as S. 607, on January 24, 1969. Cosponsors are Senators Aiken, Dodd, Hart, Gravel, Kennedy, McGovern, Mansfield, Nelson, Pell, Tydings, Yarborough and Young of Ohio.
TITLE I – UTILITY CONSUMERS' COUNSEL
Federal Agency Support
The Federal regulatory commissions supported S. 607.* As Federal Power Commission Chairman Lee White testified:
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*FPC Commission Carl E. Bagge opposed Title I.
"The adversary process, as I understand it, is right at the heart of your proposal. The proposal says in effect that the consumers shall be represented by effective, able counsel, whose sole purpose it is to represent the customers in a proceeding in which there are conflicting interests .
“A Utility Consumer's Counsel, such as that proposed by S. 607, could, in our view, contribute significantly to the resolution of regulatory issues in the broad context of the public interest through vigorous and effective advocacy of utility consumers generally. The Federal Power Commission would welcome such presentations which could materially assist the Commission in the performance of its quasi-judicial function of determining and protecting the overall public interest, of which the consumer interest is a notable part . . .
"I know how helpful the adversary process is to me as an individual who must make some tough decisions. I just believe it is unfair to the State regulators not to have before them the full range of views and arguments as they make their decisions." (Part IT, pp. 290, 296, 304).
Federal Communications Commissioner Kenneth A. Cox, speaking for the Commission, testified that:
"In short, it is important that consumers of utility services be made aware of their right and be represented fully and in the most effective way before regulatory agencies in these complicated proceedings. We believe that S. 607 will further these objectives, and we would therefore welcome the participation in our proceedings of a counsel particularly representing consumer interests . . . The function is so complicated, the proceedings are so intricate, our staff is so small, that any assistance we can get in this area through the uncovering of additional information would be of advantage to us and the public." (Part II, pp. 272, 277).
Chairman Hamer H. Budge of the Securities and Exchange Commission advised the subcommittee that "we welcome representatives of the public interest in such proceedings (as the Public Utility Holding Company Act)." (Part II, p. 456.)
Curtis L. Wagner, Jr., special assistant to the Army Judge Advocate General and Defense Department spokesman on S. 607, testified that he is "blessed with a client who has the facilities of economists, statisticians, most anything that your heart desired to present a case."
His testimony materially assisted the staff in its recommendation to delete Section 104, under which representation of the Federal Government's interest in utility matters would be transferred from General Services Administration and the Defense Department to the Office of Utility Consumers Counsel. Mr. Wagner noted that:
"The Federal agencies as large consumers of utilities services are entitled to bulk rates the same as large industrial consumers. These rates are quite often lower than those of the small business and residential customers whose interests are the primary concern of the Counsel, since they are the ones who currently have no voice in these proceedings, and the main issue in such a rate proceeding often concerns which class of customers should bear the burden of an increase." (Part V, p. 1177).
Mr. Wagner also noted that S. 607 could be of definite and timely value to other groups, such as servicemen and churches. (Part V, pp. 1184, 1i90.)
The General Services Administration did not take a definite position on S. 607, except in opposition to Section 104, which the Subcommittee may delete. GSA stated that with respect generally to provisions of the bill other than Section 104 it would defer to the views of the FPC, FCC and other agencies more directly and immediately concerned. (Part II, p. 454).
The FCC and FPC have a relatively minor role in rate-setting. Chairman White testified that total electric revenues annually total roughly $20 billion, of which $16 billion goes to investor-owned utilities, of which approximately $1 billion – about 5 per cent – is subject to Federal regulation. (Part II, p. 311.)
The FPC subsequently advised the Subcommittee that, in regard to natural gas, it had jurisdiction over pipeline sales for resale amounting to approximately $4.5 billion annually. The FPC does not regulate sales to customers. Total sales to ultimate customers by investor-owned gas utilities approximates $8.25 billion annually.
Commissioner Cox testified that annual telephone and telegram services total $16 billion, and that FCC has jurisdiction over about 25 per cent of that amount. In a few states there is neither Federal nor State rate regulation. The major responsibility for ratemaking rests with State utility commissions.
Industry and NARUC opposition
In contrast with the generally favorable, and in some cases enthusiastic support for S. 607 from Federal regulators, the trade association of the State utility commissions – the National Association of Regulatory Utility Commissioners, opposed the bill as did the trade association of the investor-owned electric, gas and telephone utilities, all citing similar reasons.
William R. Connole, representing the American Gas Association, said the bill would create "a regulatory czar to second-guess the Commissions' actions (and) concentrates the enormous prestige, money and capabilities of the Federal Government in the wrong place, at the wrong time for the wrong reasons. By creating a new layer of bureaucracy, not responsible to any identifiable person or group, the existing staffs of the Federal and State regulatory agencies will find their morale shattered, the ranks raided, their motives and ability questioned, and their places taken." (Part IV, p. 809)
William J. Crowley, executive vice president of AGA, said "the gas consumer is already fully protected," that existence of a Counsel "might be disadvantageous to consumers because of a possible overemphasis on residential rate reductions whether justified or not." (Part IV, p. 806).
American Telephone and Telegraph Company found "no useful or beneficial purpose to be accomplished through enactment of S. 607. If there are weaknesses to be found in the existing regulatory structure, it does not follow that the structure should be further weakened or destroyed, as the establishment of a Federal Office of Utility Consumers' Counsel would do." (Part IV, p. 1114.)
A spokesman for the U.S. Independent Telephone Association, President Clarence H. Ross of Central Telephone and Utilities Corporation, Chicago, differentiated between present representation of the Federal Government's interests in utility matters, through General Services Administration, and the proposed representation of consumers generally by the proposed Utility Consumers' Counsel, as indicated by the following colloquy:
"Mr. Ross: But somehow I don't trust the Consumers' Counsel.
"Senator Metcalf: You trust the GSA but you don't trust the Consumers' Counsel?
"Mr. Ross: Yes." (Part IV, p. 1029.)
Edwin Vennard, managing director of Edison Electric Institute, trade association of the electric utilities, testified that "the personnel, procedures and requirements of this bill would duplicate functions already being performed by Federal, State and local government agencies." (Part IV, p. 896.)
Similarly, the spokesman for the National Association of Regulatory Utility Commissioners (NARUC), chairman of the Pennsylvania Public Utility Commission, said "the State commissions in general, without any prodding by anyone, and through the use of their own counsel and technical staff, are regulatory performing the very duty which S 607 would place upon the separate offices of consumers' counsel to perform." (Part II, p. 219.)
Opponents of the bill relied heavily on a message by Franklin D. Roosevelt, who, when Governor of New York, 39 years ago, vetoed a bill establishing a People's Counsel to represent the public before the New York Public Service Commission. Roosevelt said the bill would transfer from the commission "what is really the function of the Commission itself," continuing:
“It would in effect reduce the Public Service Commission to the role of a mere utility court in which the people would have to fight their unequal battle against the huge resources of public corporations. The functions of the 'People's Counsel' provided for in this bill should be exercised by the Commission through its own counsel, assistant counsel, or any other employees.”
Substantially, testimony before the subcommittee showed that the Rooseveltian concept of a State utility commission, as both judge and prosecutor did not develop. Dr, James W. Fesler, Cowles Professor of Government at Yale University and author of The Independence of State Regulator Agencies, published in 1942, advised the subcommittee as follows:
"The central problem to which my 1942 chapters on state utility commissions were addressed was the growing judicialization of the commissions, whether because of inadequate funds and staff, the rationalization of inertia or utilities' political power, or the embarrassment of appearing to be both prosecutor and judge. The trend toward judicialization automatically posed the problem of who can be counted on to represent the consumer's interest. That problem had not then found a solution in most states, though Maryland had established the Office of People's Counsel and some other states considered creating similar offices. Governor Franklin D. Roosevelt vetoed a People's Counsel bill that passed the New York Legislature, on the ground that existence of such an office would encourage the commission to neglect its own role as an agent of the public.
"Regrettably, in the period since my study appeared, utility commissions in many, if not all, states have continued to settle into a passive, judicial role. Governor Roosevelt's veto has not had the result he hoped for, if what I read in the New York press accurately indicates the orientation of the New York State Public Service Commission. Despite the passage of time since they were formulated, my study's conclusions appear surprisingly applicable to the regulatory scene in 1969. I cite two that relate to the concerns of S, 607:
"1. Independence for a policy-determining, regulatory agency often throws the agency into the hands of the special interests it is supposed to regulate (p. 65).
"2. The experience of the utility commissions seems to indicate . . . that independence for them has characteristically meant a cultivation of a judicial attitude that left little room for vigorous protection of the consumer who, without such protection, cannot readily pit his resources against those of a utility company . . . (p. 69).
"So I warmly support the effort, through S.607, to establish a United States Office of Utility Consumers' Counsel . . ." (Part II, p. 233-4.)
Chairman John Dingell of the House Small Business Subcommittee on Regulatory Agencies testified that his subcommittee had found that some State utility commissions "are established not to protect the consumer, but actually to call balls and strikes between competing economic interests and simply to be umpires.
"In fact, some of them have the general understanding that they are established to protect not the consumer at all, but to regulate fights and to decide fights between so-called regulated interests."
Consumers' handicaps
A witness for an unregulated competitor of utilities, Vice President Robert D. Lynch of the National Oil Fuel Institute, pointed up the consumers' handicap under such circumstances:
"The expense of carrying a case to the State commission, the requirement to have expert witnesses, rate experts, the length of time, all of this makes it practically impossible for individual ratepayers to follow through to satisfactory conclusions . . . S.607, by creating a separate and alternate channel for protection of the consumer, will actually strengthen the hands of present commissioners by forcing utilities to provide information and cooperation to State commissions or risk exposure to a consumers' counsel which can intervene when and if necessary." (Part V, p. i280-1282.)
Nevertheless, the consumers do finance expensive rate presentations – for the utilities.
Joe Tally, counsel for ElectriCities of North Carolina, an association of municipally owned utilities, said:
"But in an electric rate proceeding the giant private electric company has paved the way before the proceeding with persuasive media advertising and careful political conditioning, and proceeds with its case before commissions and courts, and, at the end of it all, presents its bills to its customers, and the law requires them to pay it.
"All large private power companies are fully and well informed, organized, staffed, consulted, advised and prepared. The public is not informed, not organized, not staffed, has no regular counsel, is ill advised, rarely prepared." (Part III, p. 547.)
Specifically, the hearings revealed that in State after State utility hearings are one-sided affairs.
The customers pay, through its inclusion in utilities' operating expenses, for any array of legal, financial, public relations and technical talent for the utility. But nowhere, through either the rate or tax structure, does the public adequately provide for its own protection. Commission staffs are inadequate for the jobs imposed upon them by the legislatures, and in few states does the commission attempt to provide the utility with an adversary. Sometimes the hand of the regulator is so light that neither the utility nor the governor is aware that regulatory law exists. For example, a former chairman of Anchorage Natural Gas Corporation, who subsequently became governor, then Secretary of the Interior, testified before another Senate Committee early in 1969 that the utility was not subject to State regulation. However, it was and is regulated by the State commission, according to reports filed by its parent company, Alaska Pipeline, with the Securities and Exchange Commission. The gas company and holding company earned 29 per cent on its equity in 1965 and more than 64% during the first half of 1966. (Part IV, p. 838; Senate Interior Committee, Interior Nomination, Jan. 15218, 1969, p. 220-4.)
Present inequities before State and Federal commissions
Arizona
Commissioner Dick Herbert of the Arizona Corporation Commission testified that "we are to some small extent able to watch the activities of the utilities under our regulation by an analysis of the information prepared by those utilities generally for their stockholders." He testified that a utility in Arizona is represented by "the best well-known firm, with all the brilliant lawyers in Phoenix . . . well stacked with briefs and law and facilities" while the consumer is represented by "a deputy attorney general assigned to our commission along with a number of other assignments that he may have, such as the narcotics board and the tax commission and a few other assignments."
"Our commission is very large in its jurisdictional boundaries. We take securities and insurance and incorporating and a few other things, but in the utilities division I think there are 14 people in that department, a portion of which are secretarial help. We have no attorneys. We have to rely on the attorney general's office to supply us with our legal assistance. We have no economists. We have no full-time CPA on our staff. We have one registered civil engineer, and the rest is technical help (for) collecting the assessment."
Commissioner Herbert testified that Arizona Public Service Company has employees "that serve in key positions in that legislature and that the legislature failed to provide funds for an outside accountant requested by the commission, or an engineering study. In a recent rate case the commission issued an order written by Arizona Public Service Commission, including material not put before the commission during the rate case and not subject to adversary review. (Part I. pp. 60-90.)
Ed Berlin, counsel for Consumers Federation of America, testified that in the ongoing Potomac Electric Power rate case, "the only representation thus far of the consumers of this city in this proceeding will be undertaken by a staff attorney associated with the Neighborhood Legal Service Program. The particular staff attorney who is assigned to this case is a very dedicated and, I know, a competent attorney.
"However, she graduated from law school less than a year ago and has absolutely no experience in the utility area.
"I am also aware of the fact that the company in this particular proceeding has acquired the services of no less than four law firms." (Part VI, p. 1468.)
Illinois
The Illinois Commerce Commission staff, according to an American Gas Association witness, consists of "20 engineers, 17 accountants, 11 rate analysts, 65 inspector-investigators, all engaged in programs of continuous surveillance of the rates, facilities, services and financing of investor-owned utilities in the State." Illinois Commerce Department reported to the subcommittee that it was responsible for regulation of 24 gas utilities, 14 power companies, 88 telephone companies, 136 water companies, 7 steam companies, 67 railroads, 58 motor carriers, 4 airlines, 876 contract carrier trucking companies and 9,516 common carrier trucks. The Illinois commission further reported to the subcommittee that the average salaries of its employees was $9,400 for the engineers, $7,700 for the accountants, $7,345 for the rate analysts and $3,920 for the inspector-investigators. The Illinois commission, according to a report filed with the subcommittee by AGA, approved more than $3 billion in utility securities during the past 6 years. Yet the commission does not have a single security analyst on its staff. As in Arizona, the commission is dependent on the Attorney General's office for legal assistance. (Pact IV, p. 839, 842, 1038.)
Maryland
Maryland is one of the few states which has a People's Counsel to represent utility consumers. William O. Doub, formerly People's Counsel, is now chairman of the Maryland Public Service Commission. He supported S. 607, stating:
"The function of the people's counsel, as the advocate of the people, is a totally different one from the function of our general counsel, as the adviser and advocate of the commission. The relations of the people's counsel to the general counsel and the commission are as independent as those the district attorney sustains to the judge and the attorneys for defendants. To operate most effectively the office should be completely independent and not treated as a commission staff position.
Unquestionably Federal funds would be a tremendous benefit in upgrading the People's Counsel office, and giving him more staff. A good argument can be made that he should have his own staff, that he should not have to rely on the commission's staff . . . during the 15 months that I was People's Counsel, I initiated one complaint for a reduction of utility rates, and then had to wait 3 or 4 months to get the funds from my request through the board of public works. I got them, and I got exactly what I asked for, but through a budgetary allocation of $25,000 a year, which is just a drop in the bucket. At least, it would give him a start toward retaining these experts, and this is where the benefits of your bill would be so helpful to the operation of his office. With Federal funds available, unquestionably the degree of participation would be enlarged, and the number and quality of outside consultants could be increased in a variety of different cases. (Part I, pp. 55-59.)
Massachusetts
The Massachusetts legislature created a Consumers' Council in 1963. Its chairman is Dr. Edward R. Willett, chairman of the Department of Finance and Insurance at Northeastern University in Boston.
"It is to me simply astounding." he testified, "that the private utilities' side of a rate case is financed from consumer-paid operating expenses but no provision is made through the rate structure for any similar financing of the consumers' side in the rate case . . . It is quite clear to me that the consumer often does not obtain adequate rate reductions because the successful political and propaganda activities of all the utilities have created a situation in which the regulatory commissions are unable to reduce rates because of a lack of staff and/or disinterest in rate reduction."
Dr. Willett testified that he and another member of the Consumers' Council were not permitted to appear at a hearing on the blackout, nor were representatives of complaining towns and cities, although utility representatives were. The commission, he said, "does not have sufficient staff to gather information," and has "adopted the philosophy that it exists as a quasi-judicial body, which meets simply to hold hearings and render judgments." (Part I, pp. 20-33.)
Montana
Mayor William Hunt of Chester, Montana, president of the Montana Consumers' Council, testified that Montana Power, which served his town, had the highest net profit of any utility in the country in 1967 "25.37 cents profit on the dollar after payment of taxes, expenses and other costs." Nevertheless, last year the power company "directed its district offices to inform the county, city, town and school district officials to increase their 1968-69 budgets to allow for an additional 15 per cent increase in the company's rates." Actually, the power company asked for more than a 25 per cent increase in its application . . .
"Senator Metcalf : You mean that they had an application in to the Public Service Commission for a 25 per cent increase, and they came to you before there was any hearing and suggested that you increase your budget 15 per cent?
"Mr. Hunt: That is precisely right, Senator, and they did not ask me to, you know. They told me to."
Mayor Hunt testified that he and nine other Montana mayors and county commissioners formed the Montana Consumers' Council, and asked 125 cities and towns to join them in fighting the rate increase. About 20 contributed.
"Much of the opposition that we ran into in asking cities to join with us came from council members in cities such as Missoula and other cities where employees of the Montana Power Company served on the council, and effectively blocked any action. The only time any State official showed any interest was when the State examiner asked me by what authority cities could use money to investigate rate increases."
The Council raised about $15,000, less than one twentieth of the reported utility expenditure on the case. The Council hired an expert consultant who, Mayor Hunt said, "had not yet been paid in full, and I am sure the difficulty he has encountered regarding his fee will make it more difficult in the future to get highly qualified rate experts to represent the consumer."
"We did not have the time or the means to effectively raise the money that we so desperately needed. As public officials, we had our regular jobs to perform and worry about, including citizens' complaints about dogs. streets, water, law enforcement, budgets, taxes, lack of service, too much service and all the other endless matters that city and county officials must contend with. These men who serve on the council also have fulltime jobs.
"While we had only weeks to prepare a case, the Montana Power Company had been on the job for years. We had to beg for money while they collected theirs from the consumer who had no choice. To us in Montana interested in consumer affairs, this bill represents the only effective and meaningful law to help the consumer educate and protect himself."
Mayor Hunt testified that he and other local officials were at least able to delay the increase for 6 or 7 months and "this amounted to savings just for the State alone around $15,000 a month." The commission granted the 15 per cent increase – the same percentage increase which the utility had told local officials to budget for, prior to the hearing. (Part I. pp. 145-151, 186.)
New Jersey
Rear Admiral Arthur H. Padula (USN, ret.), president of the Arthur H. Padula construction Corporation in New Jersey, testified regarding his attempts to obtain the benefit of master meters rather than individual retail meters (and consequent lower rates for large amounts of electricity) for his three Federally-assisted, low and moderate income rental units, which house approximately 1,000 families. This saving would amount to approximately $30,000 a year or $2.50 per month per family.
"After prolonged discussions," testified Admiral Padula, "I filed a suit before the New Jersey Public Utility Commission that ran for 13 hearing dates in which the Public Service Electric & Gas Company had a battery of 10 to 15 high paid executives, staff and legal personnel at all times, at the expense of the public, while I was forced to pay for all of the necessary documentation, exhibits, expert witnesses, legal counsel, at my expense." (Part V, pp. 1162. 1170-1.1
New York
Last December the New York Legislature's Joint Legislative Committee on Consumer Protection released its unanimous interim report following a year long study of New York utilities and the New York Public Service Commission. The report said the commission neither represented nor informed consumers. The committee recommended establishment of a State office of consumer affairs designed to represent consumer interests:
"It should have within it a division dealing solely with the affairs of public utilities and the Public Service Commission. This division should receive or have access to copies of all materials filed by the utilities with the Public Service Commission or material prepared by the Commission itself. The division should represent the public at all hearings held before the Public Service Commission and should make its expertise and staff available to work with interested consumer groups and governmental units."
Northwest States Attorney Frank J. Jestrab, testifying on behalf of the North Dakota Association of Rural Electric Cooperatives, testified that "on these rate procedings, in these states that I am talking about, out in North Dakota, South Dakota, Montana, Idaho – even Minnesota actually – the commissions have perhaps one lawyer . . . And the utility comes in with an enormous case. They have rate experts, all sorts of executives, company officers who come in. But over on the other side, there are 600,000 consumers with no representation, no effective representation. And it is to deny reality to say the State commission can do it." (Part V, pp. 1314-7.)
Pennsylvania
The Honorable Norman S. Berson, a Philadelphia lawyer and member of the Pennsylvania legislature, told how he attempted to contest the $31 million a year rate increase – with an especially hard impact on small residential users – filed last December by Philadelphia Electric, which "has engaged the services of the largest law firm in Philadelphia." The consumer protection bill approved by the Pennsylvania legislature recently explicitly excluded representation of consumer interests:
"The State utility commission was so concerned about what might happen if we got real legislation in this area, that as a condition of that bill passing, they were able to insist that a provision be put in that would in no way affect the operations of the utility commission, nor would the consumers' counsel be authorized to appear in ratemaking proceedings. They got that provision in the law solely in order to protect themselves from the kind of adversary proceeding that we desperately need in these rate regulation cases."
Representative Berson went to the commission for information:
"The staff (of the commission) had made an analysis of the requested rate increase for the commission, and I both wanted to see that and I wanted to be present at the commission's hearing when they would decide whether to suspend the increase or not, because since the suspension involved 6 months it would involve a saving to the consumer of over $15 million. I was told I could not be present at the hearing or the meeting of the commission or whatever it was where they decided to suspend, and that I could not see the staff study that had been made presumably for the guidance of the commission.
"Now, where does that leave me? I have nobody to turn to. I do not have any assets to invest in all this sort of technical assistance. The electric company will come in. The filing alone is over 100 and some odd pages, for which the commission is asking 75 cents a page just to Xerox, so you have got to be prepared to lay out $75 just to get a copy of the tariff filing. From there the costs pyramid endlessly if you are going to be able to meet what they undoubtedly will present. With S. 607, I do not think the consumer is going to find himself in that position." (Part I, pp. 139-144.)
Richard A. Hesse, staff attorney for Community Legal Services in Philadelphia and co-counsel for a consumers action group whose members live in Philadelphia ghettoes, likewise testified that the Pennsylvania commission's staff study was not available to his clients, who were without funds to obtain competent counsel.
"Hearings have been held during which the PUC staff cross-examined the company's witnesses; but copies of the transcript are not available for use by my clients except for a single copy which may be inspected at the office of the PUC . The first round of hearings referred to above was conducted in Philadelphia. The second round, during which the complainants are scheduled to cross-examine the company's witnesses, is scheduled for Harrisburg, despite the fact that nearly all the complainants are from the immediate vicinity of Philadelphia. Our protests have been met with the response that the convenience of the Commonwealth is paramount, and, therefore, the hearings will be held in Harrisburg."
Mr. Hesse testified that, except in rate cases, the complainant has the burden of proof before the Pennsylvania commission and that counsel was sometimes required:
"I know of cases in which the PUC did nothing to aid complainants appearing without counsel. In fact, in at least one case, the PUC hearing examiner created a hostile atmosphere and denied the complainant the opportunity to cross-examine the utility company's witnesses because the complainant was not an attorney . From my own experience the only aid the PUC staff will give relates to procedure and not to substance of the complaint." (Part V, pp. 1261-2.)
Milton J. Shapp, Philadelphia businessman and chairman of the Pennsylvania Democratic Study Committee, told the subcommittee:
"The issue has been well summed up for my statement in a wry understatement of Professor Joseph Rose, chairman of the Transportation and Utilities Department at the University of Pennsylvania's Wharton School. According to Professor Rose, the Pennsylvania PUC has traditionally been very generous with those companies it regulates . . . In the present rate hearings in both Suburban Water Company and Philadelphia Electric, the consumers who are protesting this are really up against it. They do not have money to hire good accountants and good attorneys. Unless somebody comes forward and volunteers services, somebody who has had experience in ratemaking proceedings, who has had experience in reading the records as they are kept by utility companies – and they are entirely different, as you know, from records of the average businessman – it is virtually impossible in a ratemaking proceeding to ask the questions regarding the figures that are put forward by the utility companies in expert fashion. They know how the books are kept, they know how to ask the questions, and unless the person testifying on behalf of the consumer also has this knowledge, the protest of rate making at these proceedings becomes a joke." (The Pennsylvania PUC subsequently granted Philadelphia Electric the $30 million increase it requested, before the consumer groups had completed their case before the commission.)
Rhode Island
Congressman Robert O. Tiernan of Rhode Island's Second District testified that "in many instances the power companies have ignored the rate ceilings and compiled record profits in the absence of State controls. In our State. they just haven't been able to have these rate hearings, because they can't hire the experts, because of the expense involved and the States find themselves at a great disadvantage when they have a rate hearing by ally of these utility companies . . S. 607 would give the States a needed boost in assisting them to effectively represent their citizens."
The State utility commission, he said, had two executive secretaries, each paid $4.100 a year, one engineer, paid $9,200, no rate analyst, two inspector investigators, paid $4.700 a year, two accountants each paid $8.200 and three or four secretaries and typists. (Part II, Pp. 325-9.)
Executive Director Edwin P. Palumbo of the Rhode Island Consumers' Council, created by the State legislature, said S. 607 "goes straight to the heart of the problem by providing the people with their own advocate . . .
"We are not concerned here with duplicating facilities, but with creating a much needed new role. At present, the regulatory body has only the applicant's presentation to evaluate. This is not an ideal situation."
Mr. Palumbo said the Rhode Island Director of Business Regulation (which functions as the state utility commission) also supported S.607.
Texas
Congressman Bob Eckhardt, who testified in support of S. 607, told the subcommittee he was especially interested in the help it would provide local governments. He explained the Texas situation in words Sam Rayburn used in the well of the House 34 years ago "because this is exactly the case today." Congressman Rayburn, speaking for the Public Utility Holding Company Act of 1935, told the House:
"Do you know the only regulation of utilities we have in Texas, the holding companies, big operating companies, go to the town commission, for instance, in a town, and those great experts argue rates with the mayor and two commissioners . . . Some of the same gentlemen who do me the honor to listen from the gallery today have been the instrumentalities throughout the year of defeating in the Texas legislature the passage of any effective utility legislation. They confess to be for utility regulation in Texas but always make proposals that no considerable number of legislators are for. And the final outcome, no law. Yet, they have their friends in Texas today wiring Members of Congress from Texas that they are, by the passage of this bill, arranging to take away from Texas some of its power and some of its prerogatives."
Congressman Eckhardt said that "over a period of at least the 8 years in which I served in the Texas House of Representatives there were introduced sporadically utility control bills of various types." He testified that legislation providing for utility regulation was again before the Texas legislature this year, and that passage of S. 607 would be helpful in getting it enacted. (Part II, pp. 340-1, 344, 356.)
(According to the August 11 NARUC Bulletin, the legislation died upon adjournment of the Texas legislature, which adopted a resolution providing for a committee to study the feasibility of creating such an agency and to report back to the legislature in 1971.)
Virginia
State Senator Henry Howell testified that legislative attempts to provide for a State consumer counsel, or a study of the subject, had been unsuccessful over a period of years. Virginia's largest city, Norfolk, considered attempting to obtain reductions in both electric and telephone rates but decided not to because, according to its city manager. "We cannot afford to represent the people of Virginia; it is too expensive, too complicated a subject for one big city to take on . . .”
Local governments in northern Virginia as well as the Norfolk area had commissioned expert studies which indicated that utility rates were excessive. Senator Howell emphasized the value of S. 607's provision for grants to such local governments, which might be more interested in initiating a rate case than State government would:
"Senator Gurney: Let me ask you this. Since these big boys are so powerful, what makes you think they won't kill legislation in the State legislature which would provide matching funds for this bill?
"Mr. Howell: Well, what the great thing is about this bill, they cannot kill the Norfolk City Council. . . We are not worried about the big boys in Norfolk. People can get through to that city council. (Part I, pp. 96-7. 136.)
Federal Power Commission
The testimony revealed a similar lack of adequate consumer representation before Federal regulatory commissions. According to Ed Berlin, counsel for the Consumers Federation of America:
"A recent pipeline rate case before the Federal Power Commission illustrates the disparity between representation of industry and consumer interests. In the Natural Gas Pipeline of America case, the Company called upon an impressive array of outside professionals, as well as making liberal use of its own executives and employees.
"On the issue of rate of return alone the company presented eight witnesses, including two distinguished economic consultants, a prominent New York investment banker, the vice president of a large insurance company, a partner in Arthur Andersen. a bank president, and top vice presidents of Natural and its corporate parent, the Peoples Gas Light and Coke Company. The case was assembled and coordinated by five lawyers, all of whom are utility specialists from a prestigious Chicago law firm.
"Although the public record does not show the exact company expenditures allocated to this case, its annual outlays for regulatory expenses and outside professional services are matters of public information. In 1967, the company reported that it spent $304,504 for regulatory commission expenses, almost all relating to Federal Power Commission rate proceedings. And this does not include any allocation of executive salaries, many of whom worked on the rate case and several of whom testified on the rate of return issue.
"Aside from the Commission's staff, the only active consumer representation was undertaken by the city of Chicago. The city retained the services of a small Washington consulting firm and presented one witness on rate of return. It was represented by lawyers from its corporation counsel's office, none of whom was a specialist in the complex and technical ratemaking area.” Part VIA, P 1468.)
Federal Communications Commission
American Telephone and Telegraph Company told the subcommittee that "the FCC staff has consistently played an adversary role in proceedings involving the Bell system. In continuing surveillance reviews and in the formal docket proceedings, the staff takes a position adversary to that of the carrier and ably represents the public as a group of consumers. The staff is an effective consumer advocate for rates and other measures which it deems proper." (Part IV, p. 1111.)
AT & T declined the subcommittee's invitation to testify, choosing instead to deliver a statement through Washington counsel. Direct testimony and exhibits provided the subcommittee are in direct conflict with AT & T's statement on the fundamental issue of adversary proceedings.
Robert J. Leigh, counsel and director of industry relations for the Natlonal Telephone Cooperative Association and formerly an attorney for both Bell and the FCC, testified as follows:
"Let's look now at some Federal regulatory consumer protection. To use some readily available facts, let's choose the biggest utility rate case in the history of our Nation. We mean the Federal Communications Commission's investigation of the interstate and foreign services of AT & T where the alltime record was set for dollars and consumers involved. This great rate case was instituted on October 27, 1965. It continues on today still in its first phase after more than 22,000 page of formal record transcript, and it is destined to last into the 1970's. The issues are complex and the outcome will be the pattern of the future for telephone ratepayers.
"More than 70 groups intervened through attorneys to protect their varying interests. The key question is: Who was the advocate for the small consumer unable to present his own case?
"The fantastic and shocking answer to that question is that in this greatest of all rate proceedings, the small consumer of the Nation was and is unrepresented.
"In other words, there was no voice for the millions of small telephone users who provide Bell with about 90 percent of its total revenues.
"Why no advocate? Well, immediately after instituting the rate case, the FCC emasculated small consumer prtection by issuing a procedural order crippling its staff's advocacy in behalf of the unrepresented consumer.
"And we quote now from the Commission's order of December 22, 1965.
"Senator Metcalf: Will you put the entire order in the record? (The order referred to may be found in the appendix of Part II, p. 475.)
"Mr. Leigh: Yes, Mr. Chairman, we will. I have a copy of it right here.
"We quote from this order the salient parts:
"'The function of the Common Carrier Bureau (FCC) staff is not (and that underlining is the Commission's emphasis) to be an advocate of a preconceived position or to take a conventional adversary position. Rather it is to insure the development of a full and complete record which presents the facts and other ratemaking considerations relative to a fair and meaningful legislative determination of the Commission of the complex issues involved.'
"This is amazing. When the Commission tells its staff not to be an advocate for a preconceived position and not to take a conventional adversary position, it is cutting off the best and only way to provide effective advocacy for the main consumer interest. The purpose of all legislation providing for administrative regulation of public utilities is to assign to the regulatory agency the task of protecting the interest of the typical consumer who is in no position to litigate in his own behalf. Forbidding the staff to engage in advocacy for small consumer interests kills any meaningful consumer protection.
"Utility rate cases are trial-type hearings where effective advocacy will maximize the strength and minimize the weakness of each position so that the regulatory authority will be helped to understand all sides fully. Any procedural arrangement that destroys or weakens the advocacy for one major interest partially defeats the fundamental purpose of a rate case. The Commission's procedural order seriously impaired the advocacy for the main consumer interest. The staff is forbidden to serve as advocate for the interest. Bell is permitted to be an advocate for a preconceived position and to take a conventional adversary position but the staff is not. All-out advocacy on one side is not matched by all-out advocacy on the other side. Instead, the staff – the consumer protector – is something in the nature of a middle position, a hybrid position, a referee.
"What an astonishing spectacle with Bell's battery of lawyers and experts on one side fully committed to fighting for that side but no one to engage in frank advocacy for the interests of millions of consumers on the other side." (Part II, pp. 402-3.)
Bess Myerson Grant, Commissioner of Consumer Affairs for the City of New York, testified that "indeed, at this very moment (July 9), the Federal Communications Commission is meeting with AT&T officials to hear Bell's plea that it be given another huge jump in its allowable interstate earnings. There is no one else in the room. The proceeding is closed to the public.
Two years ago, AT&T was granted an increase in its interstate rate of return to a range of 7 per cent to 7½ per cent. The new rates to consumers set at that time have, however, brought in profits at a rate of well over 8 per cent. So Bell wants to keep all this new money. (Part VIA, pp. 1653.)
The impact in dollar terms, of minimal changes in Bell's rate of return was pointed up by David C. Fullerton, executive manager of the National Telephone Cooperative Association:
"As an example of the magnitude of Bell operations, if Bell's overall rate of return could be lowered by one tenth of one per cent, that is from 7.6 per cent to 7.5 per cent, we would be talking of an annual reduction of $70 million per year in consumer telephone bills."
Analysis of Bell's rate of return shows great disparity, bearing out Mr. Fullerton's point that "when utility revenue requirements need to be met, they can, it seems, most easily be garnered by spreading them over vast multitudes of unorganized, unrepresented, usually unsuspecting small ratepayers."
The summary of Bell's interstate earnings for a study period just prior to institution of the FCC's rate investigation shows that, although the overall rate of return was 7.5 per cent, the rate of return on various types of service ranged from 0.3 percent to 10.1 per cent, the latter for wide area telephone service (WATS). Bell earned a rate of return of 10 per cent on message toll telephone service – typical residential long distance calls. In contrast, the rate of return was only 2.9 per cent on teletype writer exchange service (TWX), which is subject to competition from Western Union's Telex service, 1.4% for Bell's telegraph grade private line (such as a stock ticker – Western Union competes with Bell for this business) and only 0.3 per cent for TELPAK (bulk communications circuitry rented by Bell to subscribers), a service which, unlike residential service, is subject to competition from private microwave systems. (Part II, pp. 397, 401, 415. )
Power of the Counsel
The hearing brought out the inherent weakness in present regulatory procedure as the following colloquy indicates:
"Senator Metcalf: Let me ask you. You were on the Federal Power Commission. Suppose your staff came in and made a recommendation, and you didn't follow that recommendation, as is quite appropriate. Who decides whether or not that decision shall be appealed to the appellate court? Can the staff appeal it?
"Mr. Connole: The staff of the Federal Power Commission cannot appeal; no sir.
"Senator Metcalf: Of course not. Who makes that decision?
"Mr. Connole: It is the Natural Gas Act. The Natural Gas Act doesn't contemplate it.
"Senator Metcalf: So there isn't any counsel in there to decide that that matter should be appealed to the court, is there?
"Mr. Connole: That is correct." (Part IV, p. 821.)
Another former member of the FPC, Charles Ross, emphasized the same point:
"Mr Ross: You see, Senator, one of the critical factors in this whole game is the staff's position if there are no intervenors. If the staff all by itself opposes the Commission, and the Commission overrules staff, staff is completely helpless to do anything about the Commission's decision if there are no other intervenors because the staff cannot appeal a case." (Part III, p. 636.)
The New York Legislature's Committee on Consumer Protection noted another procedural shortcoming in its interim report:
"There are numerous difficulties confronting opponents of a rate increase because of other procedural regulations. Testimony revealed that in contrast with other administrative hearings, interested parties have no subpoena power." (Part VIB, p. 1722.)
Bess Myerson Grant, Consumer Counselor for the City of New York urged that "in order to facilitate this vital information retrieval function, the Counsel should be vested with subpoena power so that it need not be dependent on possibly hostile regulatory agencies or, worse, for representations by industry officials." The Counsel, testified Mrs. Grant, "must have the power to initiate proceedings, as well as the power to intervene in proceedings which are already pending before some court or regulatory commission." (Part VI. p. 1655).
Similarly, Attorney Berlin of Consumers Federation of America testified that, "owing to the grossly understaffed status of most regulatory commissions it is essential that the Consumer Counsel be given the ability to initiate action." (Part VIA, p. 1473.)
FPC Chairman White also recommended, on behalf of the FPC, that the Counsel "be given the authority to initiate complaints." (Part II, p, 299.)
FCC Commissioner Cox testified that the Counsel "should not be dependent upon the availability of personnel from other agencies," that it would be "highly desirable for the Office of Consumers' Counsel to be independently and adequately staffed." (Part II, p. 272.)
Dr. Arthur A. Brown of Arthur D. Little, Inc., noting that the field of electronic data processing "is one in which snow is easily blown about" suggested that the Counsel staff include personnel "fully qualified in data processing," lest the Counsel "find his efforts to get information and use it frustrated by what looks like technological difficulties, but which may in fact be non-cooperative." Part VIA, page 1484.)
Attorney Berlin of the Consumers Federation of America emphasized that the legal independence of the Consumers' Counsel should be clearly established:
"The legal independence of the Consumer Counsel should also clearly be established. As you probably know, unless there is a provision to the contrary, the Justice Department is the official legal representative of Government agencies. Moreover, appeals may not be taken either to the court of appeals or the Supreme Court. The Solicitor General's responsibility applies not only to appeals in Federal courts but in State courts as well.
"We suggest that it is most appropriate, if not essential, that the Consumer Counsel be relieved of these restrictions. In view of the fact that he often will be desirous of challenging the actions of Government agencies, it is imperative that he be his own master insofar as the form and extent of litigation is concerned." (Part VIA, p. 1472.)
General Manager Radin of the American Public Power Association (Part VIA, p. 1453.) and the Honorable Andrew Biemiller, Director, Department of Legislation. of AFL-CIO (Part VIA, p, 1634.) noted the need for representation of the broad public interest in environmental protection, an area which, according to the interpretation of Chairman Seaborg of the Atomic Energy Commission, the Counsel would not – as S. 607 was originally drafted – be authorized to enter. (Part II, p. 447.)
Attorney Berlin of Consumers Federation of America pointed up the importance of Counsel authority to appear in proceedings before municipalities, noting that in Texas, for example, "all of the rate regulation that now exists with respect to the private utilities is, in fact, discharged by commissions operating on the municipal level, by municipal executives.
"We think it particularly important that when private utility rates are established by local commissions or local municipal executives, that the Consumer Counsel have the opportunity to participate in those proceedings. It would seem particularly critical on that level, because of the real paucity of any expertise available to local executive." (Part VIA, p. 1471-1472.)
Ohio is another State where "each municipality has the legislative power to fix the rates for electric service rendered to consumers within its corporate limits," with the Public Utilities Commission having appellate jurisdiction, as well as original jurisdiction in unincorporated areas, according to the testimony of D. Bruce Mansfield, president of Ohio Edison.
Grants to State and local government
NARUC Witness Bloom proposed as an alternative to S. 607 that "if the Congress determines to spend money in this area, we believe the consumers will receive the maximum benefit per dollar by the establishment of a grant-in-aid program direct to those state regulatory commissions requiring financial assistance to strengthen their staffs."
“In other words, we believe that consumer interests can best be protected by using available Federal funds to strengthen existing commissions rather than by creating another layer of government bureaucracy through the establishment of Consumers' Counsel on the Federal, State and local levels as proposed in Title I of the bill."
The preponderant testimony before the commission shows that this approach would not likely lead to the needed creation of an adversary role within the State commissions. The action of Mr. Bloom's own Pennsylvania commission is a case in point.
The Pennsylvania Commission successfully opposed legislation which would authorize a consumer's counsel to appear in ratemaking proceedings. It denied an attorney for Protestants and a member of the legislature access to staff studies on Philadelphia Electric's proposed rate increase. The commission subsequently approved the proposed increase in full, without hearing the opponents' presentation. Such procedures do not warrant Federal assistance,
The flexibility of S. 607 was underscored by Michael F. Collins, secretary-treasurer of the Municipal Electric Association of Massachusetts:
"Mr. Collins: Although we think it preferable that the States set up their own Office of Utility Consumers' Counsel, we like the provisions of section 103 of the bill which authorizes the United States Office of Utility Consumers' Counsel to intervene in State and local proceedings affecting consumers. Until a State sets up its own Office, such intervention is the only effective help consumers will have and can serve to stimulate the lagging States to do something themselves." (Part III, p. 683.)
A Republican State legislator from Ohio, Hon. George E. Mastics, thought help from a Utility Consumers' Counsel would be welcome at the State level:
"Why do we need the Metcalf bill, or S. 607? Well, first we need it in those areas where States will not act, either because the utility lobby is so powerful they cut you down before you start, or because the States, for other reasons, have not gone forward. As I understand it, in 607, it does provide that the Utility Consumers' Counsel can come in and I am sure he would be a welcome addition in a State rate matter. There should be no concern about him intruding himself into State affairs." (Part V, p. 1307.)
James L. Oakes, former attorney general of Vermont, saw long-range advantage to the grant provisions:
"Mr. Oakes: I also like section 106 of the act, permitting grants to State and local government for establishing and carrying out the functions of an office of utility consumers' counsel. This has been on a case-to-case basis. It is only for individual rate hearings, and the like. Our Vermont law has provided for representative of the public for many years and has provided for the funds to pay for such representation, and this has been one of the very reasons that we have been able to do so well in terms of electric rates as previously mentioned. The proposal of section 106 would, it seems to me, make it even easier, and make it possible to establish not just on a case-by-case basis but have an established office with long-range thinking that is necessarily involved." (Part III, p. 677.)
Danville (Va.) Councilman Carter testified to interference from New York, rather than Washington, in discussing American Electric Power's attempts to defeat Danville's bond issue for expansion of the municipal light plant:
"I think there is something morally reprehensible when such a juggernaut of a cartel goes into a municipality and undertakes to confuse and disseminate information that is not true or which is half true for the purpose of gaining from the people who own an asset in common this asset for their stockholders." (Part III, page 545.)
A number of witnesses, including Chairman Doub of the Maryland Public Service Commission, testified that the bill would not encroach upon the powers of the regulatory commission. (Part I. p. 59.)
"The thing that I see in this bill relating to the State regulatory agencies." testified Dr. Willett of the Massachusetts Consumers' Council, "is that it gives them a tremendous amount of assistance in doing the job that really they are supposed to be doing. I think it would be very helpful to them."
Grants to nonprofit organizations and universities
The provisions of S. 607 for study grants in the regulatory field drew support from numerous witnesses, including spokesmen for the telephone and natural gas industries. Executive Vice President Douglas Gleason of United Utilities, a witness for the U.S. Independent Telephone Association, said:
"The fourth objective of S. 607 deserves support. Regulators and managers of utility companies alike should welcome supported studies of regulatory matters. It would be helpful to all concerned if a broader understanding of the objectives of utility regulation could be achieved. It is and will continue to be useful to explore ways to achieve these objectives more efficiently and more effectively." (Part IV. p. 1035.)
William Crowley, executive vice president of the American Gas Association. testified that:
"It would be wonderful if we could do something to stimulate public utility departments or teaching public utility courses in our major universities, because we need a backlog of people both in our utility companies and in our regulatory staffs . . .
"Unfortunately, there is an extreme paucity of utility economic expertise in universities. Virtually no universities possess public utility departments devoted to the education of students in public utility economics and related concepts." (Part IV, pp. 874, 793.)
Mr. Crowley noted the difficulty which the gas industry and regulatory agencies have in finding people with training and interest in public utility matters. So did Defense Department spokesman Wagner:
"One of the most difficult areas to fill is a job in the utility area, primarily because the people who are experienced in the field are making far more than the Government could offer them. There is no question about it. And No. 2. the opportunities to gain experience in this field are extremely limited." (Part V, p. 1187.)
Charles Ross, with experience as both a Federal and State regulator, now teaching, had this observation:
"Furthermore, so far, for all intents and purposes, I have managed to avoid becoming too involved with too many utility clients. This is a fact that I desire. I have turned down some and I have done this because it allows me to teach a little more objectively, I think. But this is why this particular section of this bill, by providing some assistance to the universities, to lecturers, to people who want to specialize in the study of regulation, people who want to make constructive criticisms of regulation, would enable them to continue to do so without the necessity of seeking clients, either public or private power clients. The public might thereby gain something in objectivity from these people." (Part III, p. 626.)
"Second. I want to strongly endorse Title I, Section 107 and Section 108. For many years, both the quality and quantity of research coming out of our universities on the economics of public utilities has been woefully lacking. As you know, rightfully or wrongfully, research effort is directed where there is financial support. The private sector of the utility industry has given virtually no support to research efforts in universities on the economic aspect of the industry. One can only wonder why. Have they been afraid to let the cold unbiased eye of the academic researcher take a good look at their operations, rates, structure, and other areas? As far as I am aware, the money that the private sector – IOU's – has spent at the university level, has largely been of a public relations type. (Part VIA. p. 1490.)
The executive director of the Missouri Basin Systems Group, Robert O. Marritz, questioned the scholarship of some of the university research and writing financed by utilities:
"At sections 107 and 109-11 provision is made for grants to be furnished to college, universities and nonprofit corporations for the purpose of making studies and reports relating to regulation and decisions regarding consumers in fields of energy and communication. This seems appropriate, in that there appears to be very little research and study presently being conducted on the electric industry. Normally the System Group would not be concerned about the scholarly research in the utility field, but for the recent publication of a book entitled "Mid-Continent Area Power Planners," by W. Stewart Nelson, and published by the Institute of Public Utilities.
Division of Research, Graduate School of Business Administration at Michigan State University.
"Very briefly, the book seems to us to be an unscholarly, superficial and often inaccurate source of information on the history and present development of power supply in the Missouri Basin, as I hope to demonstrate below . . ." (Part II, p. 418.)
"Mr. Turner: May I interrupt your testimony to ask you a little bit about this Institute of Public Utilities?
"Mr. Marritz: Yes.
"Mr. Turner: Do I understand you to say that all of the industry members, members of the institute's advisory committee are officers of investor-owned gas, electric and telephone utilities?
"Mr. Marritz: That is my understanding: yes." (Part II, p. 431.)
FCC Commissioner Cox testified that the bill's study grant provisions would create new interest in the utility area:
"There would be the stimulation to young people, and to others, to develop a specialization in this field, which could supplement the work that has to be done." (Part II. p. 279.)
Model laws
FPC Chairman White warmly endorsed a companion role of the Counsel, that of preparing model laws:
"The responsibilities of the Consumers' Counsel for the preparation of legislative recommendations and model State and Federal laws are of vital importance in protecting the economic interests of utility consumers. In its role as proponent of legislation, the Counsel has a significant opportunity to focus legislative attention on unmet consumers needs and to point out statutory changes which would create a more sensitive regulatory framework." (Part II, p. 292.)
Vermont's former Attorney General Oakes told how the model law section of S. 607 would have been helpful to Vermont officials:
"Mr. Oakes: Certainly the proposition of model laws for utility regulations contained in section 112 is highly desirable. I think it is particularly so, having assisted Commissioner Ross when he designed our long-range legislative program back in 1959 and 1960. But we have no model laws on which to base our legislative proposals. This is, after all, an esoteric field, the specialized knowledge of which is largely confined to a few private and a few public lawyers, economists, and engineers. (Part III, p. 677).
Appropriations authorized
The authorized appropriation ceiling for S. 607 would amount to one tenth of 1 per cent of the aggregate annual gross operating revenues for all utilities, as defined in the Act. Those revenues, in 1967, totaled approximately $40 billion dollars. At that level the annual appropriation authorizations for S. 607 would be $40 million. Because of the growth of the regulated industries, the authorization would increase by approximately eight per cent ($3.2 million) annually.
Because of the inadequacy of utility reports, it is not possible to estimate how much utilities spend on preparing and presenting their cases. One witness, Mayor William Hunt, president of the Montana Consumers Council, reported that Montana Power spent an estimated $300,000 in its 1968 rate case (Part I, p. 151). Several witnesses testified that utility advertising and public relations expenditures rose during rate cases and municipal bond election.
The appropriation authorization – one tenth of one per cent of gross revenue – is comparable to utility contributions, which many commissions permit to be included in operating expenses. (Detailed description of this practice in Florida appears in Part 6A (p. 1495-6) and in a March 1969 series of articles in the St. Petersburg Times, Part 6A, (beginning on page 1511).
In a 30 September letter to Senator Metcalf which arrived too late for inclusion in the printed record, Chairman John Nassikas reported that total donation of major electric companies in 1968 totaled $20,139,000. Revenues were $19,539,000,000. Thus donations amounted to slightly more than one tenth of one per cent of revenue.
Senator Gurney said (Part VI, p. 1496.) that utility contributions are "so negligible," as to be undeserving of consideration, unless principle is involved, and too small to be significant to customers. By that reasoning, the comparable authorization for S. 607 is too modest to dispute.
TITLE II – PUBLIC INFORMATION
Adequate and timely information is essential to the regulatory function. A regulator, before he can determine whether an expenditure is allowable as an operating expense or as part of the rate base first has to know what the expenditure is, and how it is carried in the accounts. A party in a rate case, such as a representative of the consumers, needs the same information.
As with Title I, NARUC and the trade associations of the investor-owned utilities opposed Title II, which was supported by Federal and other witnesses. Mr. Bloom, NARUC, spokesman and Pennsylvania commission chairman, testified that Title II "would impose an enormous and unnecessary burden on the FPC and the FCC . . ." and that "substantially all of the information called for by Title II of the bill is available to the public today." (Part II, pp. 224, 226.)
Mr. Vennard of Edison Electric Institute said that "regulatory commissions should, of course, have available to them all information necessary for them to do their job. Much of these data are of a highly technical nature which the general public may not be able to interpret properly." (Part IV, p. 902.)
Informing commissions not the same as informing public
NARUC and the industry trade associations stressed the importance of providing the commissions with information held necessary for regulation. Other witnesses emphasized the necessity for providing the public with information, in understandable form, on a comparative basis and in a timely manner.
As Chairman White of the FPC testified:
"The commission agrees with the basic premise of Title II of S. 607 that adequate and readily available information is essential for effective utility regulation and is keenly aware of the importance of providing the public with understandable and readily comparable data concerning the finances and operations of electric utilities, licensees and natural gas companies." (Part II, p. 293.)
Defense Department witness Wagner emphasized the difficulty of obtaining needed information about utilities, despite the considerable resources of his client:
"We are very much in favor of those sections of the bill dealing with the information to be supplied by the utility. The most difficult job we have in defending a utility case or prosecuting a complaint case against any utility is obtaining information from a utility.
"In those instances where we have been able to get cost information, we have been much more successful. This has come about often by hook or crook methods, even using trickery to get the information, but we have been much more successful in those instances, and we heartily endorse those sections of the bill dealing with information requirements." (Part V, p. 1181.)
AT&T wrote the subcommittee that the information specified in S. 607 "could be utilized by utility consumers if made available to them."
"The question of whether legislation is necessary arises again, however, for with few exceptions the information specified in the bill is already reported to regulators in the telecommunications industry." (Part IV, p. 1112.)
AT&T, like other industry witnesses and NARUC, thus regarded as sufficient the provision of information to commissions, rather than the public. The record before the subcommittee shows the insufficiency of informing only commissions.
For example, AT&T stated that "in addition to its annual report, all duly filed. preserved and available under FCC rules and the Administrative Procedures Act, "a monthly statement of the earnings of each Bell system associated company is furnished by the FCC to and at the request of NARUC for distribution to the State commission". (Part IV, p. 1113.)
State Senator Howell told how he was unable to obtain these monthly reports from either the Chesapeake and Potomac Telephone Company or the Virginia State Corporation Commission:
"I wrote and asked the State Corporation Commission to get me one year's monthly reports so I could attempt to get a CPA to tell me what was in this report, because I saw some interesting figures that I did not understand, like 8 something per cent.
"I was called up to the SCC and met with representatives of C&P and they spent two hours explaining to me why I did not want this form. It was not really relevant. Well, I told them I did. The SCC wrote me back saying that they were not going to require the C&P to furnish it. It was an internal report on their finances, and the C&P general counsel wrote me and told me that they were not going to furnish it. I am a State Senator and I am interested in these things. And so I have no way at the present time of getting the financial picture not only of who owns the stock, but what the earnings are." (Part I, pp. 110-1.)
Senator Howell further testified that he had called public attention to rate disparities under which it was cheaper to call Toronto, Canada than another part of Virginia. The information showing this rate disparity had been printed on the telephone book's inside cover. After he publicized the rate disparity the telephone company abandoned the practice of putting information on long-distance rates in the phone book, (Part I, pp. 99, 106, 110, 111.)
Dr. Willett of the Massachusetts Consumers' Council testified that information filed by utilities with the Massachusetts commission "is not disseminated to the public, and the public does not realize it is there."
Attorney Hesse of the Philadelphia Community Legal Services testified that "my clients are unable to acquire the necessary experts and the PUC will not share the work product of its staff with us. (Part V, p. 1262.)
The New York Legislature's Committee on Consumer Protection found it "difficult, if not impossible, for interested parties to examine the basic reports, figures and memoranda of both the utility and the Public Service Commission." (Part VIB, p. 1722.)
Miami City Commissioner Maurice Ferre testified that Florida Power & Light refused to open its books to the City of Miami, and that the Florida Public Service Commission denied the City of Miami's petition to look at the company's books and records. (Part VIA, p. 1551.) The Attorney General of the State of Florida has brought action to attempt to get direct access to utility records, so that they may be studied and evaluated. (Part VIA, p. i491.)
Ohio State Representative George E. Mastics testified that the bill's provision for "a central information center where this utility information can be reached by anyone" is "one of its finest points, because this is where I have had so much difficulty and our commission has had difficulty in trying to find out what is the corporate and rate structure of these utilities." (Part V, p. 1307.)
Arizona Corporation Commissioner Herbert testified that "the provisions of Title II with respect to the acquisition and distribution of information relating to utilities will substantially help the commission keep abreast of trends in the public utility industry . . . (and) compare the operations of its utilities against nationwide performance." (Part I, p. 60. )
James Richardson, associate professor of Finance at the University of Florida and former mayor of Gainesville, testified that the value of Title II to public officials, researchers, security analysts and many others would be tremendous. "While some may argue that the records and data are in the hands of the various commissions and the Federal Power Commission, the cold hard fact is that frequently important data, such as that provided for in this section, are simply not available or if available, only after long and expensive search and complex accounting and financial adjustment." (Part VI, p. 1491.)
The large utility companies, testified Mr. Shapp of Pennsylvania:
"Have dozens, in some cases hundreds of persons working on their books and they keep one set of books in one department and another set in another, and there are few people who know the key of putting all of these records together.
"So they keep the two sets of books, but if you try to pry into these, either set of books, you have to go back really to the source of the data that is buried in some department and that source is very seldom revealed at the hearings, or even in their records." (Part V, p. 1244.)
Another Pennsylvania witness, Attorney Hesse of Philadelphia Community Legal Services, noted that the Philadelphia Electric Company's books have not been examined by the PUC staff for at least 4 years and no detailed audit of the company's books has ever been conducted by the PUC. “In the present case, we find ourselves dealing with books which have been certified by an accounting firm which has been convicted of fraud in connection with its certification for another corporation," (Part V, P. 1262.)
NARUC Witness Bloom's statement that “substantially all of the information called for by Title II of the bill is available to the public today" was subverted by a statement of the Nevada Public Service Commission which he himself put in the hearing record. That statement, according to Mr. Bloom. "is very much in accordance with the views of the National Association of Regulatory Utility Commissioners."
The Nevada statement held requests for information in three of the categories "both unreasonable and presumptuous" for anyone "less well informed than State regulatory commissions, whose daily business it is to know and understand the circumstances of every utility they regulate . . ."
Information in nine of the categories admittedly had to be obtained from utility annual reports or Congressional request to Federal regulatory agencies. The Nevada Commission said that most of the remaining information requested was unimportant, or strictly a State affair. The commission warned especially against publication of information about rate base, a matter "beyond the comprehension of most consumers." The all-important matter or rate base is one "for determination at the regulatory level by commissions who are the sole experts in a position to be adequately informed and to pass intelligent judgment. (Part II. pp. 226-230.)
Apparently, in the view of NARUC and the Nevada commission, the public is on its own in obtaining information about regulated utilities and, anyway, possesses neither sufficient information or intelligence to make proper judgments.
Present availability of information called for in Title II regarding electric power and natural gas pipeline companies appears in Part II, pp. 492-496. Chairman White testified that of the 24 specific information items in S. 607 as introduced, 10 or so are already published periodically, a half dozen or so are on forms that are already available, without any change in reporting by the companies, and another half dozen or so "would require some change in commission and company procedures." (Part II, p, 319.)
The FPC does not publish or collect statistics on gas distribution companies, as Congressman Eckhardt learned from Chairman White of the FPC when Congressman Eckhardt was attempting to obtain basic data about gas companies in his district. (Part II, p. 347.) Indeed, even the American Gas Association could not provide the Subcommittee with a basic financial statistic, the return on common stock equity of individual gas distribution companies. (Part IV, p. 816.) In the landmark Hope Natural Gas case, in which the U.S. Supreme Court laid down the doctrine of "end result" in 1944, the Court stated that "the return to the equity owner should be commensurate with return in other enterprises having corresponding risks." One must wonder how both commissions and courts have been able to make meaningful determinations absent basic data based on uniform reporting standards.
The need to know specific information provided in title II
Beneficial Ownership
NARUC witness Bloom foresaw benefit in knowing who beneficial stockholders of utilities are:
“We could take a much better look at some of the service contracts to determine whether those beneficial owners have service contracts with a utility. We could take a mighty hard look at the service contract to see if they are in any way being favored as a result of the fact that they have a large interest in the utility which was not disclosed." (Part II, p. 267.)
Similarly, Frank H. King, manager of the Holyoke (Mass.) Municipal, said this reporting requirement would have helped his city in its effort to find out who was behind a private utility's attempts to lease and subsequently take over the municipal light plant.
"Such constructive legislation (as S. 607) would have been of great interest and value to us as public officials at the time." (Part III. p. 658.)
Certainly the FPC's present reporting requirements on security holders provide scant, even misleading, information as may be seen from excerpts of such reports filed last year by Pennsylvania and Montana electric utilities and appearing in Part I, pp. 154-185.
For example, Philadelphia Electric reported a number of investment firms and insurance companies as principal stockholders. Nowhere in the Form 1 report to the FPC is there indication of the substantial financial and directorate ties between utilities, banks, insurance companies, and railroads as developed by the Patman Committee (summarized, as regards Philadelphia. in staff memorandum, Part I, pp. 152-3).
"Cede & Co." – which the Interstate Commerce Commission ruled last year can no longer be used as a cover for hiding the names of real owners of railroad stock, appears as one of the 10 top security holders of Philadelphia Electric. On the other hand. Montana Power states that it does not know who the top security holders are, and then lists street names of investment houses which are nominees for beneficial owners.
Figures under the final column of the FPC report form, cryptically headed "other" list unexercised stock option held by insiders. It is impossible to verify the nature of these "other" holdings by reading the report, and it is likewise impossible to determine the extent to which individual insiders benefit from these holdings by reading the entire Form 1 reports, reports to stockholders and Form 4 reports on insider transactions filed with the Securities and Exchange Commission.