Section 13 of the Act, and rules thereunder, are directed to companies in a holding company system which sell goods or render services to the other system companies. Under Section 13(b), charges of service companies are limited to "cost." Misuse of service companies was one of the major abuses to which the Act was directed and this subject received much attention during the reorganization phase of the Commission's administration of the Act. As a result. service companies were reduced in scope and required to operate in a well defined manner under comprehensive rules. For a long period of time, service company charges became a minor portion of the cost of utility service and the enforcement of Section 13 of the Act did not present a problem. In recent years, because of the energy crisis, circumstances have changed. As a consequence, the Commission's staff has undertaken the necessary review, including five field inspections of service companies in registered systems, in order to assess the new issues and developments. While the involvement of electric utility companies in fuel supply antedated the Act and had been found to be functionally related to the operations of an integrated system, such involvement was generally insignificant during most of the history of the Act. Because both fuel and transportation were freely available on the open market, the electric utilities, as major and reliable consumers, were in a favored position, and had no need to acquire additional resources in these areas. This policy changed radically with the advent of the energy crisis, which had to be dealt with effectively and expeditiously, because utility companies must operate without interruption and cannot generate - 32 electricity without a supply of fuel for the boilers. 34/ The Commission intentionally adopted no predetermined standards for fuel-related activities at the beginning of the program. The energy crisis was and still is rapidly developing, and virtually every registered system has its own views as to what should be done. Experiment and innovation were considered desirable. The Commission is moving toward a comprehensive ap proach on the basis of experience rather than on the basis of theory. 35/ Contrary to the statement on page 34 of the Report, specific applications have received very special attention, with a strong emphasis on technical and economic features. Other agencies were consulted, particularly with respect to representations as to transportation difficulties, a subject with which the staff had little experience. Full explanations were required as to the expected use of the fuel and as to reasons other sources had become unavailable. And, in the meantime, as has been noted, the staff is engaged in inspections of service companies, including fuel affiliates, in order to develop rules and a system of accounts and thus adapt Section 13 to current needs. 34/ The Report notes (pages 33-34) that 11 of the 14 registered systems and 18 of the 24 utility companies not subject to the Act made extensive investments in fuel and fuel-related projects. A closer analysis would show that the response of the large electric utility companies was virtually unanimous, as shown in the table on page 17, supra. 35/ State commissions are also confronted with the same problem in terms of ratemaking. - 33 VI. RECOMMENDATION OF THE COMPTROLLER GENERAL THAT THE COMMISSION CONDUCT A As a final matter, it should be noted that the Comptroller General's Report recommends that the Commission conduct a thoroughgoing study of developments in the gas and electric industry in order to determine the continued usefulness of the Act and to evaluate the standards under the Act. In that connection, the Comptroller General has specified four subject matter areas which should be examined in the recommended study. Based on the foregoing discussion, our specific responses are as follows: Whether "the business practices of holding companies and the A system controlling significant interrelated properties in more than one state cannot be fully regulated by a state, unless the transactions of the regulated company in that state with its associates can be reduced to a very narrow and simple compass. The exemptions provided in Section 3(a)(1) and Section 3(a)(2) correspond rather precisely to the inherent jurisdictional limitations on effective state regulation of a utility system. Nor would a Federal agency be able effectively to regulate a holding company system unless its statutory authority were to include the principal subjects dealt with by the Act. See pages 27-29, supra. 2. Whether "the act's standards governing the size and struc- The standards affecting the size and structure of electric or gas utility companies, such as the definitions of an integrated system in Section 2(a)(29), are couched in qualitative economic terms and expressly refer to relevant current conditions. Accordingly, such standards are not subject 3. Whether "continuation of exemptions is detrimental to the exemptions need changing." The exemptive provisions of Section 3(a) were designed to define the appropriate scope of federal regulation under the Act and have not been an obstacle to the Commission's efforts to eliminate the abuses which gave rise to this Act. Only if Congress should determine that broader federal regulation is required would it be appropriate to narrow the exemption provisions. Or perhaps such regulation should be predicated on some more comprehensive and relevant jurisdictional basis than holding company status. Our experience does not indicate a need for amending Section 3(a) or for changing the Commission's interpretations under that Section. See pages 19-23, supra. 4. Whether "it is in the public interest to permit public Both reliable fuel supplies and research and development are unquestionably essential to the continued operation of utility companies. The recent entry of utility companies into these fields was largely a response to the lack of reliable sources of fuel and transportation to serve new generating capacity. Alternative solutions would have to be based on studies over much broader fields than the utility industry such as the fuel and the railroad industry. See pages 31-32, supra. |