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SHA-5:ECTRIC GENERATING PLANT STATISTICS (Lorge Plants) 1. Mr; sempliss of Dir: Coliwalesca 3. Ignis uncil and purchased on a deras hens, the lui (urinn af UCUN 1... Canecalcolati occasid sind the quality ul lucl brushed Content jiwind wandere insicuule, include nucicur pisau. '11 cu. f. 111.:) ('). ? If any pantis iras: d or c;kruldas joint facility. indicate such 6. Quuntives of fuel buen die 35, and area's conter unit o furt faris bericus nesis. fo.inoics.. buronkorral vid loosent motherboars to any ace SOI and I thinr 1, Sunn on line 21 1 logealerundlor Corsir.ulcs is nci available. Sinthoi lich is availallisen knal 7. If more than our fuel is burned in plant furnitively the con Worlommiers soiends rotan ere grarising jene, prosite heat tsic brail forte dispred. Trenle me rurale 16.15 Iurixi el einplacetonate R, 7he items wadas (oint repronto arcours of coales el arconinterrelis the initia'ssure..! Ini Piren Rent No: (b) 1 Hind plant (stcam, internal combustion, sas Springdale Mitchell turbinc or nuclear)..... Stcan Steam 2 Tym o plant construction (conventional, outdoor Conventional-Onc Boiler boiler, full ourdoor, CIC.).... Semi-Outdoor Conventional 3 Year o:iginally constructed..... 1948 . 1920 Year Last unit was installed...... 1954 1963 Toiel installed capacity (maximum generator 422,130 448,700 name plac ratings in kw.).... . 6.Vir pak demand on plane-kw, 160 minutes).. ..421,000 470,000 7 Plant hours connected to load... 8,760 & Net continuous plant capability, kilowatts: 9 (a) 1.cn not limited by condenser waicr... 455,000 476,000 10 (b) When limited by condenser watcr. 445,000 455,000 11 Average number of employees...... 244. 95 12! Net generation, exclusive of plant usc..... 1,954, 123,000 3,102,257,000 13 Cost of plant: Land and land rights... $ 419,670 $ 39,857 15 Structures and improvements. 11,534,164 13,585,060 Equipment costs.. 37,960,481 42,099,203 17 Total cost ... _$49,914,315 _$60,124,620 Cost per kw. of installed capacity (Line 5).. 16 $118 $135 19 Productioa expenses: 20 Operation supervision and engineering... 244,563 $ 149,867 Fuel...... 4,549,234 6,071,795 22 Cuslants and water (nucisar plants on y')..... 23 Sicam expens:.... 399,486 154,382 S:can front ofl.er sources... Sicam transcricu (C..). Electric expos...... 368,487 137,269 Viise 3160 m power expenses for nucica:).... 299,765 158,268 Ra.. Mainichance supervision and engins:ri: 5..... 98,215 70,476 Miricance o structures.... 147,288 26,545 Vrintenar.ce of boiler p!an: (0 reactor pant). 999,556 897,279 Writ.16.23:.-o clcciric plan... 166,208 150,092 Vriecerance of misc. sicam ;!agi (: nuci:ar) 53,60). 15,161 Tc:2! picjue in cxpenss.. $_1,324,403 $ 7,83!,!3? Ex:15:3 pornst inn. (..!-2 laces)... S 003778 .002523 :!:: Yurt: kir .... G:) 0.1 Ces! G:1 Tons Quanty (units) or lucl burn.cd... .?!,076,200 9.295,163 39 Page 3
Senator METCALF. Thank you very much, Mr. Brennan. I know that you will thank Mr. Boyle personally on my behalf and on behalf of the subcommittee for his intention to appear. I also want to thank you for some of the suggestions that you pointed out, that might not be directly appropriate to consideration of this bill but are part of the consideration of this whole matter. You have so comprehensively and so thoroughly analyzed the impact in your special area, that I think you have thoroughly covered the subject and I have no questions. Do you have any questions, Mr. Turner? Mr. TURNER. I do have some questions, Mr. Chairman. I generally get into this at various stages in the hearings, and it has to do with the concentration of economic power-economic power, not electrical power. I notice in Representative Patman's study in the 90th Congress, second session, a staff report, relating to commercial banks and their trust activities, dated July 8, 1968, that he lists interlocking directorships between banks and the Consolidation Coal Co.—which I believe is the largest coal company in the United States. Mr. BRENNAN. Yes. Mr. TURNER. You would not have any guess as to the percentage of output of that coal company, as compared to the total revenue output? What percentage of the market it has? Mr. BRENNAN. Consolidation Coal Co., produces approximately 10 percent, approximately 10, it may be 15, but not more than that. Mr. TURNER. I notice that Consolidation Coal Co., has one director from Continental Illinois National Bank, and that there are three sirectors on Consolidation Coal from the Mellon National Bank & Trust Co. Also, Mellon has four employee benefit funds managed by the bank, relating to the Consolidation Coal. Then, I turn to the Mellon National Bank & Trust Co., and I find, Mr. Chairman, that Mellon has one director on Pennsylvania Power & Light, has two directors on Duquesne Light Co., and owns 5.5 percent of the common stock of the Idaho Power Co., 8.3 percent of the preferred stock of Central Hudson Gas & Electric. You may be interested to know, Mr. Chairman, Mellon National also owns 21 percent of the preferred stock of Montana-Dakota Utility Co. I wonder, Mr. Brennan, if you could see any problems with respect to the interlocking directorates creating a special relationship between the purchaser and the supplier. Mr. BRENNAN. This goes much beyond the immediate statementbut I would like to make one comment. Consolidation Coal Co., which is the Nation's largest—although they and Peabody occasionally go back and forth on this accounts for 10 percent of the Nation's coal production, approximately. I notice in your reading that you mentioned that one of the utility companies concerned is Duquesne Power. Within the last 2 months, the United Mine Workers of America and some of the pensioners who are beneficiaries of the United Mine Workers of America Welfare and Retirement Fund, maintained a picket line in front of the Duquesne Page 4
So it suggests to me that as we move along we may have to shift from the State-by-State approach to a much more interstate federalized approach to our national problem of electrical energy distribution. Mr. BRENNAN. You are jumping somewhat ahead of me, but it is very obvious that the development of our energy industry—and by that, I mean all segments of it—is such that it has outgrown the framework established by the Congress and the States years ago. We are going to have to reassess it and compare it to the needs of the present and future. The needs of the future, from where I am, are so staggering that it is almost incomprehensible. Mr. TURNER. Thank you, Mr. Chairman. Senator METCALF. Well, I have certainly appreciated this dialog, too. I share your enthusiasm about the threshold that we are on, extra-high-voltage transmission, direct-current transmission, and the technology that we are developing. And I think you cannot too often reiterate that this tremendous coal reserve we have is the resource that we have just come to accept and we are not developing. And as you point out, $3 billion into atomic energy, and yet maybe that $3 billion would have made a tremendous difference in the utilization of those vast reserves that underly all of the eastern part of Montana and all of North and South Dakota, and most of Wyoming. And when we can put that on a plant at the mine mouth and ship it by transmission line down to Los Angeles, we will take care of a lot of their pollution problems, too. Mr. BRENNAN. That is right. Senator METCALF. So, this is a point, that the Northeast should share the benefits of West Virginia coal. And the way to do it is not by trains, the way to do it is the new technology we have developed, with very little line loss, put it on a high-voltage transmission line, ship it up there. Mr. BERRY. I have no questions. Senator METCALF. I have enjoyed your presentation, and I share your enthusiasm for the prospect of coal in the future, as a citizen from one of the States where our reserves of coals are tremendous. Of course, technology comes in there, too-utilization of lower quality coal. I am told that for some purposes our lignite is even better than anthracite or bituminous coal. So we could talk about this, it is somewhat extraneous to the bill, but nevertheless, this business of regional and national application of energy, of electric utilities shipping resources from one part of the Nation to another, can bring tremendous benefits to the consumer. This is why we have to see that those benefits are protected on behalf of the consumer and passed on, and not just channeled into a few large utility corporations or bank holding companies. Thank you very much. Mr. BRENNAN. Thank you, Senator. Senator METCALF. The committee will now be in recess until tomorrow at 10 a.m., in this same room, at which time the first witness will be Mr. Alex Radin, general manager of the American Public Power Association. (Whereupon, at 12:20 p.m., the subcommittee adjourned, to reconvene at 10 a.m., Friday, June 27, 1969.) Page 5
So, at least we would have competent counsel, while it would not be as many, maybe as the other side, it would be competent and the bill then provides for a means of obtaining the facts necessary to present the case. Mr. Radin. That is right. Senator METCALF. And, of course, we would want to reform the law so that there would be some uniform laws that would be applied equally and equitably in all States. Mr. Radin. That is right. I think the problem is that as far as the individual consumer is concerned, his bill for electricity, for example, might be affected by only several dollars a month at a particular rate. So he does not have the resources or necessarily the economic incentive to spend a great deal of money to join in a rate case, although his own electric bill might be overcharged by a certain amount per month. But the company has millions of dollars at stake, and collectively, the consumers have millions of dollars at stake, but it is hard to organize the consumers on a basis so they can collectively start the movement that would be needed before a regulatory commission. I think your bill would go a long ways toward redressing the imbalance that presently exists. Senator METCALF. We recently had a rate increase in Montana, and the consumer study out there showed that the rate increases went through rather quickly and without very much opposition. It has a greater effect on the ordinary citizen of Montana than a tax bill that was fought bitterly in the legislature, and is still being fought in the political arenas around the State. And yet, the people accept this larger rate increase, just as a matter of course, but they bitterly fight an increase in taxes that might help them in the schools, or taking care of law and order, or things like that, that are regular governmental activities. Mr. Radin. That is right. I can remember discussing this point once with a labor organization leader, and we were talking about the difference in rates between publicly owned utilities and privately owned utilities, and he was rather astonished and said, “The amount we are talking about is more than we would go out on a strike for.” So sometimes the consumer does not realize the extent to which he is affected by utility rates. I think another somewhat intangible issue that is involved here is the degree of pressure or countervailing force, you might say, that is applied to the regulatory agency by the various contending parties. I have talked privately with people who have served on regulatory commissions, and although very little of this ever comes out in public, I think they are subjected to tremendous pressures by the regulated industries in one way or another, sometimes subtle and sometimes not so subtle. And the consumer does not have that countervailing force to make his case before the commission. I think, really, what is involved here in your bill is to give the consumer some degree of representation that would balance this situation, at least to some degree. Page 6
As one Senator, I have some misgivings about our regulatory system, and if we can start all over again, maybe we can get a better one. But this is the one we have, and under State regulation and State laws, and it would seem to me that we have to recognize that it is going to be with us. And in drafting this legislation we tried, as you pointed out here, to work within the framework of the present system, to just give the consumer the same right that a big corporation has, or the utility companies, in a ratemaking case, and to recognize that more and more, with their small staffs, regulatory commissions have just become referees and listen to the evidence presented and make their decisions on the basis of the facts that they have. As you pointed out, in Mr. White's testimony and that of others before this committee, the point was made that if regulators had more facts, more information, and more competently presented analysis of those facts, they would be better able to make a decision in the public interest. So I think that you have made a significant contribution as a result of your experience. I think Mr. Turner has some questions. Mr. ŘADIN. Yes; thank you. Mr. TURNER. Mr. Radin, how many years have you been associated in the field of electric energy? Mr. Radin. About 21 years. Mr. TURNER. Twenty-one years. Mr. Keyserling, representing the Edison Electric Institute, came before us and gave us some of his opinions on S. 607. He said that he had had occasion during recent years to make very extensive studies of the electrical industry and the regulatory processes, with respect to Federal, State, and local level. And while he was speaking, he reached a major conclusion, which is almost the basic emphasis of his entire statement. He said, and I quote. "The utilities had not been subjected to a regulatory process which has resulted in excess charges to the consumer. "In fact, these industries have lived in recent years under a regulatory process in the misguided zeal to offer the consumer the lowest obtainable rates in the short run, and deprive these private industries of the funds and the incentives required to invest enough in plants and equipment and technological research to optimize their service, and that the industries are being deprived by the regulatory agencies of the wherewithal to meet their responsibilities." Is that an accurate and correct statement of the situation with respect to State regulatory agencies and the private utilities? Mr. Radin. That is not my impression. I do not shed any tears for the treatment which the utilities have received at the hands of the State regulatory commissions. I think their earnings record is quite good, and I suspect that competition in the long run has brought greater benefits to the consumer than the regulatory process and has not been of detriment to the utilities. For example, if you take the utilities that surround the TVA area, their rates have come down very significantly as a result of the competition of TVA, and yet the earnings on their common stock have risen faster than that of the national average. So I would not say that bringing about lower rates is necessarily detrimental to the utilities. I think that they could stand a greater degree of competition, and would profit in the long run by having such competition. Page 7
comer cose che companies $7.34, com- pared with $6.48 for the public systems. This cost item was 35 cents higher thao in 1966 for the publicly owned utilities, 3 and ic jumped 16 cents over the previous year for the power companies. 2 In 1967, the public power utilities 1946 'O '48 49 51 52 53 54 55 56 57 58 59 80 81 82 83 spear $1.10 of $100 revenue for promotica and advertising, up one cene from 1966; the companies spent $1.79 for this Expense items-managerial - item in 1967, four cents less than in Promotion and Advertising 1966. dollars The power companies continued to cajoy lower average costs for production 15 promotion and verir? Der $100 tasut and distribution during 1967. The companies' production cost climbed 10 promotion and morts slightly to 4.03 mills per kwh, while che per $100 roue public systems reported a drop co 4.31 0.5 mills per kwh, down from 4.36 mills per 1346 47 48 49 50 'S1 'S2 53 'SA 'S8 59 60 61 82 83 84 86 87 88 33 kwh in the previous year. · Distribution expenses per customer Expense items-managerial cose for both types of systeras in 1967 Administrative and General from $17.84 to $18.67 for the companies, dollars and from $18.54 to $19.37 for the public systems. Return to consumers grow3 The publicly owned utilicies reporting to the FPC on "Taxes, Tax Equivalears, administrative and general Contribucions and Services" during 1967 per $100 trent Poua had aggregate revenues from sales o 6 ultimate consumers of $1.39 billion. Of PRIVATE this, $28,855,474 was paid in taxes, $29,814,870 in tax equivalents, $82,656,519 per $100 EUR to general funds of municipalities, $7,- 1946 47 48 49 50 'si ' 53.54 55 56 57 58 59 60 61 63 64 *86 67 034.909 in other contributions and $10,382,307 in services. Expense Items-managerial By comparison, the privare utilities re Accounting and Promotion and Adrninistrative ported that in 1967 they paid 10.8% of Collections and General revenues ia taxes other than Federal in Por Customer Per $100 Revenue Per $100 Revenue (in dollars) (in dollars) (in dollars) come caxes, less than the 11.4% of cev. Private Public Private Public Private Public caues reported as being concibuted to 1946 3.73 2.82 1.77 1.03 7.22 6.11 their communities by the publicly owned 1350 3.38 1.79 1.11 7.09 Systems. 1955 5.33 6.59 But these payments and contributions 1960 6.38 4.94 1.70 1.04 6.29 6.31 by the local publicly owned systems sep Page 8
So that these regulatory agencies are important, not only in rates, but also in conditions of service, which have a profound effect, both on rates and on dependability and reliability of service. Mr. TURNER. This goes to my third point. Senator METCALF. Could I interrupt here. Mr. Radin, as I told you earlier today, at 11 o'clock in the House of Representatives we are going to have a swearing-in ceremony for the newest Congressman of the United States, John Melcher, a friend of both Senator Mansfield and myself from Montana. So I am going to ask if I may recess this hearing at the present time and I will get back just as soon as possible, I hope not later than a quarter of 11, and we will resume the hearing. Therefore, we will be in recess until subject to call of the Chair. (Whereupon, there was a short recess.) Senator METCALF. The subcommittee will be in order. At recess, Mr. Turner was asking a series of questions of Mr. Radin, and he will continue. Mr. TURNER. Thank you, Mr. Chairman. I did want to get into the area of electrical reliability. We were talking about pooling from the standpoint of obtaining power sources, and more importantly, competitive power sources. Mr. Radin. Yes, that is correct. Mr. TURNER. Then comes the more important area to the average person, which is the problem of the blackout. Do you feel this would be of particular interest to a consumer counsel, to be concerned with the development of continuing and reliable sources of electricity where alternatives can cut in, in the event of blackouts? Is this something which we should be involved in? Mr. Radin.Yes. Here you get into a very highly complicated, technical issue. I think that the consumer counsel could make representations before the appropriate agency of a State, or the Federal Government, having responsibility in the field of reliability of service. I presume that the consumer counsel could be helpful in this regard. Of course, the final responsibility would rest elsewhere, as it would, of course, in rate cases. But I think, in quick answer to your question, that the consumer counsel certainly could be helpful in pinpointing or accenting this issue before the appropriate regulatory body, yes. Mr. TURNER. My final point involves the ecological importance of electrical facilities, environmental pollution, thermal pollution, and the possibility of going underground with extra-high-voltage lines rather than over people's houses. This kind of area of interest would also be a part of the consumer counsel's concern, would it not? Mr. Radin. Yes, it could be. And here we are getting into a field where I think some of the basic issues are still in the process of being evolved, as to how we are going to handle the question of environmental and ecological problems that result from building large nuclear and other thermal power stations and transmission lines. But, again, the consumers' counsel certainly could represent the wishes and interests of people before whatever responsibility bodies are set up to deal with these questions. Page 9
It has certainly been the experience of member utilities of our Association that they have had to be armed with high-quality legal counsel and technical witnesses in order to present their cases adequately to regulatory agencies. Such legal counsel and other talent can be quite expensive, and although the rewards usually compensate for the cost of bringing such a rate case to a regulatory agency, I know from personal experience that many municipalities have besitated to present a case to a regulatory commission because of their concern about the formidable costs involved. Even so, the following are a few notable examples of what municipal utilities have been able to achieve by initiating and carrying through cases before a state or Federal regulatory agency: 1. Consumer owned electric utilities intervened before the Vermont Public Service Commission during the consideration of licensing the Vermont Yankee nuclear powerplant. As a result of this intervention, Vermont consumer owned electric utilities were guaranteed an opportunity to participate in future large generating plants. Although private power companies have constructed large generating plants throughout the Nation, no commission has ever guaranteed such participation without such intervention. 2. A group of Massachusetts municipal electric systems filed a complaint with the Federal Power Commission against New England Power Co., citing inequities in rates and contract provisions. In September, 1968, the Commission ordered New England Power Co. to revise certain contract terms, and in January, 1969, the FPC accepted a NEPCO rate filing resulting in a $3.3 million rate reduction retroactive to September 1, 1968. 3. Gainesville, Florida, filed a complaint with the Federal Power Commission regnesting interconnection with Florida Power Corp. on a nondiscriminatory basis. On November 5, 1968, the FPC ordered Florida Power Corp. to interconnect with Gainesville on a basis similar to that enjoyed by the other systeins with which Florida Power Corp. was interconnected. 4. Elbow Lake, Minn., brought a complaint to the FPC against Otter Tail Power Co. which had served the city at retail prior to 1966, when Elbow Lake decided to own its own electric system. When the city formed a municipal system, Otter Tail refused to supply the city at wholesale or to wheel power from two possible sources of power supply—the Bureau of Reclamation and Basin Electric Power Cooperative. In November, 1968, the FPC ordered a temporary interconnection between the municipality and the private power company to avoid potential power shortage during the winter of 1968-69. 5. Massachusetts municipal electric utilities requested an evidentiary hearing before the Securities and Exchange Commission, to support their position that approval of stock acquisition for Vermont and Maine Yankee nuclear powerplants to the exclusion of participation by municipal systems was not in the public interest. SEC denied the hearing, but an appeal to the United States Court of Appeals for the District of Columbia upheld the municipal systems' petition seeking a review and new SEC hearing. The court cited the Clayton antitrust act and noted that the SEC is required to consider restraint of trade aspects in deciding whether to approve a stock acquisition. My purpose in citing the above-mentioned cases is to emphasize the point that results were obtained by the consumer owned utilities because they took the initiative to bring these cases, and engaged their own legal talent and other experts to present their cases to the respective commissions. These commissions lacked the staffs, and in some cases the necessary legal authority, to initiate such cases involving the consumer interest. If these municipalities found it difficult to bring such actions before regulatory commissions, it is apparent how much more difficult it would be for private citizens to initiate and carry through actions before regulatory agencies, particularly when their stakes individually might be quite small but collectively, highly significant. Existence and action of a utility consumers' counsel with opportunity to intervene before courts and commissions would enable the protection of all utility consumers, including wholesale utility consumers, when a court or commission action would "affect the economic interests of consumers of utility services within the United States." In addition to aiding consumers of electricity, such a counsel would assist in the regulatory process. As FPC Chairman Lee C. White stated before this committee: Page 10
STATEMENT OF THOMAS H. MOORE, PRESIDENT, ILLINOIS FEDERATION OF CONSUMERS The Illinois Federation of Consumers strongly supports $607. It is the hope of our organization that the committee will report this bill favorably to the Senate with a recommendation that it pass at the earliest practicable date. Legislation of this character is indeed long overdue. The public utility companies of this country are able to spend very large amounts of money in defending and promoting their interests before public bodies and regulatory commissions in both Washington and the state capitals. Consumers of the services of these utilities, on the other hand, are now, as they have been, without an effective voice and, above all, they lack access to the full facts upon which utility rates and other matters affecting the utilities should be based. Therefore, the first reason for our support of this legislation is that it would establish an office of Utility Consumers Counsel in the federal government and then encourage the establishment of such offices in the various states. Second, the bill would require the utilities to furnish to these consumer counsel offices the full information necessary for passing judgment upon the fair and proper levels of utility rates and other matters bearing upon the interests of the people as consumers of utility services. It is to be observed that the public utilities are at present spending large sums of money, which they derive all too often from overcharges of consumers, in their attempt to influence legislation and to influence the action of regulatory bodies. Those regulatory bodies are supposed to represent the people's interest as consumers, but in all too many cases the utilities, which are supposed to be regulated by them, have established such overwhelming influences as to be in position to control their own supposed regulators. Almost all public utilities are virtual monopolies in their particular fields. This in many cases is almost necessary in order to avoid wasteful duplication of facilites and servces, but by the same token, any privately owned monopoly, which is actually in a position of irresponsible power over the people, must be subjected to the most careful, wise and courageous regulation of their rates and actions in the interest of the people. Already Senator Metcalf and other senators have, by their indefatigable work in ferreting out the facts, provided a great deal of heretofore unknown information to the consumers and have thus armed them with the kind of facts they need to represent their own case before regulatory bodies. This type of work cannot fairly be left to be done by busy members of Congress. It should be performed, just as S607 provides, by governmental bodies specifically established to defend the general public interest. Under S607 this is precisely what would happen. The citizens of Illinois have a particular reason for supporting this bill, for while a 6% return is universally regarded as fair and adequate for a monopolistic utilities organization, we find that Commonwealth Edison Company, which serves the majority of consumers in Illinois, has been enjoying a return of 8.8% on sales and a return of 14.8% on its common stock equity. The overcharge which this company succeeded in collecting from its customers over and above what it would have received at a 6% return was in 1967 almost $100 million, and this amount of money was more than the total budgets of all the utility regulatory commissions in all the states of the United States. When rate increases are requested by public utility companies, it would seem a minimum of justice that the consumers of their services have an independent source of factual information with which to judge the justice or injustice of the rate increase requests. S607 would provide this. It would be a first step toward equalizing the bargaining position over against the utility companies, of the people of the United States. Mr. ANGEVINO. CFA supports S. 607 and is very grateful to you, Senator, for your efforts on behalf of utility consumers. Thank you. Senator METCALF. Thank you. Now, Mr. Berlin. Mr. BERLIN. Mr. Chairman, would you prefer I not go through the entire statement? Senator METCALF. Go right ahead. Page 11
Colorado has eight professionals regulating 49 electric, 18 gas, 35 telephone, one telegraph, 16 water, three petroleum, one steam, and 14,687 transportation utilities. Mississippi has five professionals regulating 29 electric, eight gas, 26 telephone, one telegraph, 187 water, and 197 transportation utilities. And Wyoming, again with five professionals, regulating 29 electric, 18 gas, 15 telephone, one telegraph, 11 water, 19 petroleum, one steam, and 1,213 transportation utilities. Indeed, 25 State commissions have staff's of less than 50, including a disturbing paucity of professionals. It is little wonder that Commissioner Herbert of Arizona candidly conceded to this committee that his staff is unable to match the parade of experts offered by the utilities. If this is the situation on the State level, what, then, must be the experience and frustrations of the thousands of municipal executives all across the country that have ratesetting responsibilities which must be exercised without the availability of any impartial expert assistance ? Even if the plight of our State commission staffs were not so discouraging, the need for an independent consumer voice would be no less pressing. Staff counsel is, as well he should be, responsible for the full, impartial development of the record. He may not, and should not, be a partisan advocate. And, as former FPC Commissioner Charles R. Ross has pointed out, staff counsel is, of course, denied the right of appeal. We contend that if it is appropriate to ask the consumer to fund the one-sided utility presentation, at the very least he should be guaranteed an advocate that is free of any constraints of impartiality. Whether a rate proceeding is characterized as quasi-legislative or quasi-judicial, it should be adversary in nature, and adversary proceedings can work only if partisan representation is available to all competing interests. S. 607 would supply the fundamentals so necessary to the success of these adversary proceedings. Far from interfering with the functions of State commissions, as some have suggested, it would facilitate the proper discharge of their public interest mandates. We find it inconceivable that enlightened and dedicated State commissions would not have rushed before this committee with thankful praise for making the Utility Consumers' Counsel a possibility, Let us be clear that the only real issue before us is the need for a consumer's advocate; not whether utilities have made excessive profits nor whether existing rates of return are adequate to attract expansion capital. We were disturbed that representatives of the American Gas Association and the Edison Electric Institute resisted facing the issue head on, choosing instead to bemoan the economic difficulties of their respective industries and to criticize FPC Chairman Lee C. White, as did Dr. Leon Kyserling, for failing to concentrate on questions which must be viewed as irrelevant to the issue presented by this legislation. Whether or not a utility is earning an adequate rate of return, the consumer is entitled to adequate representation when that issue is litigated. The fear seems to be that the creation of a consumers' counsel will precipitate a stream of unwarranted rate reductions. But let us not forget that there can be no such reductions without the con Page 12
Senator METCALF. I have an article from Electrical World-which I certainly regard as an authoritative publication of June 23, 1969, which tells about this South Dakota Consumer Council bill having been set aside by petition for a referendum. It describes the bill, reports that 13,846 signatures were obtained and the bill had now Mr. BERRY. Yes, Mr. Chairman. Senator METCALF. Would it come up in November? Mr. BERRY. It will be on the ballot next November. Because the bill provides for regulation of the entire industry. The investor-owned utilities, the municipalities, and the cooperatives. Senator METCALF. Anyway, according to this, it is going to be a key issue in South Dakota's next election. So I will put this in the record. (The material referred to follows:) SOUTH DAKOTA CONSUMERS LEAGUE, Madison, s. Dak., July 24, 1969. ERMA ANGEVINE, Executive Director, Consumer Federation of America, Washington, D.C. DEAR MRS. ANGEVINE: You have asked for the position of the South Dakota Consumers League in regard to state and federal legislation concerning utility regulation. The Consumers League is on record in opposition to a bill which was passed by the South Dakota legislature to create a state gas and electric regulatory agency. The Consumers League is on record in support of a bill now before the U.S. Senate Subcommittee on Intergovernmental Relations to create an office of utility consumer advocates on the state and federal levels, among other things. Enclosed are resolutions backing these statements. The resolution of our members at their first annual meeting September 21, 1968, endorses the “Intergovernmental Utility Consumers Counsel Act (S. 2933) by Senator Metcalf to provide for the representation of consumers before regulatory commissions." This bill has been re-introduced in the current Congress as S. 607, and this is the bill which we now support. The February 1969 issue of the SDCL Newsletter contains (on Page 2) a resolution passed by our board stating the League's opposition to HB548, the South Dakota Gas and Electric Consumers Council Act. The Newsletter also explains some of the bad features of this bill. Further explanation of our position is contained in the leaflet, “Why South Dakota Consumers Oppose HB548." Both positions grow out of a strong feeling that utility regulation in the United States, especially on the state level, has utterly failed to work on the side of the consumer; rather, it has come to serve the interests of the monopoly utilities which were supposed to be regulated. Throughout 1968 we fought a request by Northwestern Bell Telephone Company for a substantial rate increase. While this case was pending before the South Dakota Public Utilities Commission we attempted, through volunteer lawyers and what little expert advice we could get for free, to present the public's If the Metcalf bill had been law, and we had had the services of a publicls. supported and adequately-financed office of consumer advocate, that several hun. dred thousands of dollars in needless extra telephone rates might have been saved for the consumers. Page 13
This case gave me a real awareness of the inadequacy of the regulatory systems. It led to a statement which I made earlier and which you restated to the subcommittee : "It is clear that you can't fight the big utilities with sticks and stones. They write the rules, lease the ball parks, hire the umpires, and are financed by the spectators. To come up with players of the same caliber, consumers have to have lots of money—or tax-paid counsel such as envisioned in the Metcalf bill." The only major regulated utility (Northwestern Bell) has an official in charge of liaison with the commissioners, and is in Pierre at their office so frequently that one consumer-owned telephone system manager said he began to think of the telephone company man as "the fourth member of the PUC." In planning some sort of campaign against the rate increase, we were encouraged by South Dakota law which allows the commission to use tax funds to hire an attorney and rate expert to represent the public. But the commission hired an attorney whose firm is retained by a major electric utility, and who has not expressed a philosophy of consumer protection, and the consumer lost again. The next step was to attempt to hire our own attorney and rate expert, but the estimate of $30,000 to $50,000 for a full-blown rate case was out of the question, The consumers of South Dakota found themselves in the position that Senator Metcalf has described time and again : Through their telephone rates they were financing a very expensive and technical effort of dozens of well-paid telephone company experts to raise their rates. But through their taxes they had no real representation, because the commission assumed not the role of consumer advocate but the role of impartial referee. This brings us to early 1969 and the legislative session in which Governor Frank L. Farrar caused to be introduced a bill, HB 548, to create a new state board of three members, to be appointed by the governor, paid a salary of $20,000 each per year and have general powers to regulate the electric utility industry. The session found the support for this bill coming from the governor, the privately owned electric and gas utilities and the attorney for the large municipal electric systems, a man who also represented a major private electric company. The opposition came from the electric cooperatives and smaller municipal systems (which are consumer-owned and in no need of regulation), the South Dakota Farmers Union and the South Dakota Consumers League. Our reason for opposition, stated in detail in the enclosed exhibits, can be said simply: This bill embodied all the worst faults of state utility regulation that could be found throughout the United States, many of which I have cited in connection with the telephone rate case. The bill was, in fact, copied almost verbatim from a 1963 bill which was written by a power company lobbyist. If there were any real regulation in the governor's bill—any help for the consumer at all—there would be no support forthcoming from the utility companies who seem to want it so badly. These same utilities, I might add, through their national association the Edison Electric Institute, are opposing S. 607. May I add a personal note with regard to S. 607. I see a possible hole in it which could be plugged through amendment. The reason for failure of the utility regulators in the states today is that the politically-powerful monopoly utilities have either persuaded them to believe the utility philosophy, or the utilities have convinced legislators to keep the commissions on shoestring budgets which effectively keeps them from doing adequate police work. The same fate, it appears, might await the utility consumer advocates envisioned in this bill. I would like to see a strengthening amendment, if it could be written, to somehow insulate this office from the political forces which could be controlled by the utilities. If any further explanation is desired, please feel free to call me. Cordially, JAMES C. WEBSTER, President. Page 14
[From "Electrical World," June 23, 1969) STATE CONSUMERS COUNCIL LAW MOOTED BY PETITIONS-POLITICIANS SEE IT AS THE KEY ISSUE OF SOUTH DAKOTA'S NEXT ELECTION A law creating a South Dakota Gas & Electric Consumers Council is moot until voters decide its fate in November, 1970. Opponents were able to gather more than 50,000 signatures on petitions to have the measure referred to a vote of the people in the next general election. Only 13,846 signatures were needed to set aside the law and place the issue on the ballot. The law creating the council was approved by the state legislature in late March after squeeking through the senate by a one-vote majority, and signed by Gov. Frank Farrar, who proposed and backed the measure. The mooted law had called for a $150,000 budget, with $60,000 of it going to three commissioners. Their functions would have been to settle territorial disputes, control rates, establish uniform accounting, and protect customers of each electric and gas supplier. Some 79 utilities would have come under the regulatory umbrella-32 distribution cooperatives, two generation and transmission cooperatives, 32 municipal electric systems, seven investor-owned electric utilities, a privately owned electric utility, and five gas companies. Major opposition came from rural electric co-ops. The measure was once defeated in the legislature last year. However, Republican leadership in the senate was able to persuade a farmer-member to change his vote, which gave the measure the edge to carry. Private utilities have been generally mum on the creation of the council, and haven't opposed the measure. Publicly, REA officials accuse private utilities of quietly lobbying for the measure when it was before the legislature. Municipalities owning power plants have given qualified support to the consumers council proposal. Some larger municipalities feel a rate-study agency would be beneficial. The co-ops fear that the council would be a device for raising their rates. A newspaper poll taken in mid-May showed 48% against the measure, 31% for it, and 21% undecided. The issue is considered by many to be the No. 1 controversy in South Dakota. The public opinion survey showed that over half the farmers and ranchers gave Farrar and his administration a “poor" rating. Statewide, however, the Farrar showing was: 4% excellent; 25% good ; 31% fair, and 40% poor. Farrar, a Republican in a Republican state, believes the possible benefits of a consumers council have not been fully understood. The governor would name the three members of the council for staggered seven-year terms. Each would receive a salary of $20,000 annually, and utilities would share the cost. The council concept of regulating the industry offers a workable vehicle to settle grievances from both within and without the electric and gas utilities fields, Farrar said. He said excessive rates are as grievous as excessive taxes because they hit low-income families with the same impact. "Our industrial development potential and the needs of individual consumers for the lowest possible gas and electric rates are too precious to be sacrificed so a handful of private power and rural electric leaders can carry on their personal feuds," he said. Opponents say that gas and electric rates could be regulated by the state Public Utilities Commission, but that the agency never made use of this authority. Senator METCALF. We have a bill in, Mr. Berlin, to provide for bypassing of Budget Bureau by the regulatory commissions, which are not executive branch agencies. I know Mr. Dingell has a similar bill in on that score. And we have under prepartion a bill to carry out the rest of your suggestions, as to representation of consumers on Budget Bureau advisory committees. We have had some correspondence regarding lack of representation of the consumer groups on the advisory committees. So I was glad to have additional comment that you had. Mr. BERLIN. As you know, Mr. Chairman, the Consumer Federation of America did request an opportunity to participate on the regulatory committee of the Bureau of the Budget on this very issue, and received a denial, I believe, in February of this year. Maybe January. Page 15
Was Ervin saying that U.S. Sen. Lee Metcalf, D-Mont, and Vic Reinemet in their book had made commission people aware of things they had not been aware of before? Ervin said. “Yes, but his picture that's given does not necessarily fit the con. ditions ... the information would have been given to the public or legislature if they had shown interest." Ervin said the interest is growing as indicated by a bill introduced by Florida Rep. William Register, D-Tampa, in the just-completed state legislative session. The bill which passed the House but failed in the Senate would have eliminated charitable contributions as a company expense that could be charged the If the commission decides already-made donations included as operating expense by the company, were not acceptable, an adjustment can be ordered by the commission. Ervin did not know of any disallowed charitable contributions, however, on the May 31 list supplied by the company. And, regardless of what Ervin believes the commission has done in terms of checking the contributions, Millsaps says the company continues to include "roughly" one tenth of one per cent of total revenues as operating expense. The list for the test year ending May 30, 1968 shows contributions to a great assortment of clubs, foundations, funds and even city and county governments. And a tax assessor association. One-hundred and seventy nine recipients are listed. Quarterback Clubs ($70), Opera Guild of Florida ($200) and the American Nuclear Society ($350) received pieces of the charitable action. So did Boy Scouts, Girl Scouts, veterans and religious groups. United Funds, which include many of the individual groups listed, received $100,929. Chambers of Commerce received $9,067 and Junior Chambers of Commerce $1,246. (NEXT: That Metcalf-Reinemer book and a look at how well the PSC functions) Senator GURNEY. Does it give any indication, Mr. Chairman, of what the gross revenues are and what the total amount of charitable deductions are ? Senator METCALF. No, just looking at these gifts, the charitable contribution is about $151,000. That was a reasonable one-tenth of 1 percent of total revenue. As I look through, a mathematical computation could easily be made. It lists some of the gifts, some of the recipients of the gifts. Senator GURNEY. How much was the revenue? Mr. TURNER. I have here the operating revenues for Florida as reported for 1967. Senator METCALF. Florida Power & Light, $245 million. Senator GURNEY. For what year was this? Mr. TURNER. This is the latest I have for 1967. Unfortunately, we do not have the 1968 figures, but I believe they have been printed. Senator GURNEY. I think I can give you the accurate figures, Mr. Chairman, if you would like them, for Florida Power & Light. The gross revenues last year, I understand, were $340 million. Senator METCALF. For 1968 ? Senator GURNEY. Yes, and the charitable deductions were approximately $240,000. This figure is to 0.0006 percent of revenue. The point I am making is that the point the witness is trying to make is so negligible that it almost does not deserre consideration at all. unless, as he points out, there is a principle involved. But it certainly is not reflected in any significant rate increase to the consumer. I wish we could translate that figure as to what it means for the charge per kilowatt hour. It must be infinitesimal. It could not be anything else. I do Page 16
Senator GURNEY. This is a different matter than the one we are talking about; is it not? I can understand why a utility company would not want to do that. After all, they are competing with municipals and REA's. I am not sure they should be forced to manufacture electricity for them. I am simply saying there is certainly an argument that you should not manufacture electricity for your competitor. But we are talking now, at least, I thought you were, about an interconnection for emergency purposes. When you run over peak loads and have hurricanes and other disasters, it is a good policy to have interconnection with some other capacity. Mr. RICHARDSON. I would like to be a member of the Florida pool. I think we are being denied a basic right, not to be a partner in the Florida pool. Senator GURNEY. But that is not really responsive to the question I asked. Weren't you speaking about the importance of an interconnection for emergency purposes? Mr. RICHARDSON. Yes, but I cite this as one aspect. Senator GURNEY. But that has nothing to do with the policy of the Florida Power Corporation not wanting to sell electricity wholesale. These are two different matters. Is that not correct? Mr. RICHARDSON. No. From their point of view, any conection, any sale at all, as I have understood their policy, would be a violation of that policy Senator GURNEY. Well, I do not know what their policy is. But I thought you were describing a policy that they did not want to manufacture electricity and sell it to you instead of your generating it yourself. This is something which is quite apart from an emergency or peak load matter. Mr. RICHARDSON. They do not want any interconnection, any sale, or any power to flow. Senator GURNEY. But they have interconnections. They have one in Orlando, which is near where I live. Mr. RICHARDSON. With the city of Gainesville. They were interconnected with Orlando, as I recall, considerably before 1960. Senator GURNEY. But is it not really true, Professor Richardson, that the Problem in Gainesville, or with Gainesville and the Florida Power Corporation, is a territorial fight? Is that not generally what it is all about? Mr. RICHARDSON. No, I think we want an interconnection. Senator GURNEY. You mean there was never any dispute as to what territory you, the city of Gainesville, and the Florida Power Corp. would receive ? Mr. RICHARDSON. When we asked for an interconnection, we asked for an interconnection. We did not want to talk territory. We were going to talk about interconnection. Senator GURNEY. Did the Florida Power Corp. want to talk territory? Mr. RICHARDSON. Yes. Senator GURNEY. Well, is that not what the argument is all about? Mr. RICHARDSON. As far as I am concerned and the city is concerned, our interest is in getting an interconnection. They keep putting in some conditions that, you know, you can't sell your birthright. Page 17
I resent the idea, for instance, that the Montana Power Co. can make contributions to the Young Americans for Freedom and then the Young Americans for Freedom come up and blast me in an election, just as the distinguished Senator from Florida would not want an ADA contribution from Florida Power & Light. It works both ways. So we should have our individual right to make the contribution. I would like to hear a little more about the Florida Power Corp. Are all the Florida IOU's interconnected ? Mr. RICHIARDSON. Senator, Mr. Kelly is here and Mr. Kelly has greatly more expertise in this area than I do. I have a general knowledge of it, but he has a great deal of expertise here, if I may defer Senator METCALF. Very well, I shall de fer and wait for Mr. Kelly, Because I think it would be helpful to have a description of the whole working activity. I have no more questions. Mr. Turner, do you have any? Mr. TURNER. On page 5 of your statement, you allude to the fact that in 1965, Gainesville entered into a series of discussions with the Florida Power Corp. Then you go on with respect to the interconnection, and then you go on to say, "We also contacted Florida Power & Light Co., but they 'suggested' we work with the Florida Power Corp. Now, would you be in the best position to describe to this committee what was meant by “suggested” and the discussions that took place, or would Mr. Kelly, or would both of you? Mr. RICHARDSON. I can do it. You might let Mr. Kelly. He actually-I think I was a member of the city commission and he, I think, actually wrote the letter. Or maybe I don't know. I think Mr. Kelly wrote the letter requesting interconnection and the reply came, I think, to him. I think he is probably the one who Mr. TURNER. Did you engage in direct discussions with the Florida Power & Light Corp. on the question of interconnection? Mr. RICHARDSON. Not on a formal basis, except this was done by correspendence, but no discussions other than correspondence. Mr. TURNER. What was the substance of their correspondence? What did they say precisely when you asked for an interconnection? Mr. RICHARDSON. They said in essence that they felt that we should talk with the Florida Power Corp. because they were nearer to us. I think the nearest point of interconnection would be about 12 miles, where Florida Power & Light hits the city of Gainesville, whereas Florida Power Corp. actually delivers power in the city of Gainesville. Mr. TURNER. Was there any indication that the Florida Power Co. had been allocated to that area? Mr. RICHARDSON. That is what we think, it is very strongly indicated that we should talk with them because we were the territory that they were serving. Mr. TURNER. Did they absolutely refuse to interconnect with you? Mr. RICHARDSON. No; I would not say that they, by word, they did not say, “We will not interconnect with you.” But by action, we felt that it was a refusal. Mr. TURNER. My next question goes to the FPC decision. What was the decision of the FPC? We know that it insisted on interconnection. Page 18
Private electric utilities in the State are allowed to contribute money to their favorite charities, schools, private clubs, and other groups, and the consumers, not the stockholders or the company officers, put up the funds. While the law allows “reasonable” contributions, the commission seldom questions the utility, and in fact, only one contribution over the last 10 years has not been approved. The commission consistently denied citizens permission to check company books" and the commissioners “don't ask to see the supporting company books” of utilities they are supposed to be regulating. "Use of the yearend rate base, deferred tax treatment, and other PSC policies hide the actual profit the companies are receiving." Florida commission members, who are elected by popular vote, had their campaigns financed by representatives of the utilities they regulate. While the Florida commission is understaffed and underfinanced, the people in Florida “are providing the utilities with unlimited funds and experts with which the companies can represent themselves before the PSC." The sorry state of regulation in Florida is further demonstrated by the fact that the Florida commission simply does not have the necessary employees to do a proper job of regulation. For example, the commission in California, which is often cited for its regulatory effectiveness, has a total of 795 staff members, while the Florida commission employs a total of 141, according to figures compiled by the Federal Power Commission in 1967. The number of professional employees on the California commission is 280, while the Florida commission has only 30. When you look at the number of electric customers in each of the two States for the year 1967, there is one professional regulatory staff member for each 18,074 customers in California, while there is only one professional staff member for each 58,029 customers in Florida. With this kind of regulatory ability, it is easy to see why the private power companies in Florida publicly support the commission. By supporting this understaffed regulatory body, they are assured of little control over their activities. During the recent legislative session in Florida, a bill was introduced to place REA's and municipals under the jurisdiction of the Florida Public Service Commission. The question was asked of the commission during the consideration of this proposed legislation, what would the commission suggest as an additional appropriation to bring this segment of the industry in Florida under its umbrella of regulatory authority. The reply, as quoted in the press, was that $50,000 additional moneys per year would be required to carry out this program. Again we can demonstrate with such a statement as this from the Florida commission that they do not intend to do a job in the field of regulation. On the one hand they constantly state when pressed as to the poor quality of regulation in Florida that they do not have the money or staff to do more than a casual or cursory examination of records, and so forth, yet in this instance, when additional burden is about to be thrust upon them and they are asked how much additional moneys are required, they reply that the small sum of $50,000 is all Page 19
Foundation, $1,000; Illuminating Engineering Research Institute, $833; Girl Scouts of America, $795; Citrus Center Boys' Club, $500. Total, $116,085. Florida Power & Light Company is asking for approval of these expenditures in its current late case ! American Cancer Society Units, $835; American Legion Posts, $182.50 ; American Nuclear Society, $530.31; American Red Cross Units, $1,849.50; American Rescue Workers Units, $130; Amvets. $25 ; Animal Rescue Leagues, $30; Apprentice Conferences and Committees, $125 ; Art Leagues, Councils and Institutes, $1,985 ; Armed Forces of the Palm Beaches, $75; Associated Charities, $25; Association of Legal Secretaries, $50. Athletic organizations, $4,225.15; Band Parents and Boosters Associations, $614.50; Big Brothers, $500; B'nai B'rith Women Chapters, $122.50; Booster Clubs, $1,727.54; Boys Clubs, $4,530; Boys Ranches, $32.50; Boy Scout Troops, $743.34 ; Builders and Builders & Contractors Associations, $372.50; Business Associations, $125; Business Executive Women's Club (Altrusa Club), $89.67. Campus Crusade for Christ, $50; Cerebral Palsy Association Units, $70; Chambers of Commerce, $9,067.72; Charities, Inc., $40.25 ; Children's Home of South Florida, $60; Children's Service Bureau, $250 ; Christian Record Braille Foundation, $15; Churches and Temples, $2,644.26; Citizens Committee for Better Schools, $100; Citizen Safety Councils, $3,200; City and county Governments, $12,032.83; City of Hope, $25. Civil Air Patrol, $12; Civitan Clubs, $45; Coast Guard, $20 ; Combined Jewish Appeal, $5,000 ; Committees of 100, $256; Community & Civic Clubs, Councils and Associations, $1,318.76; Cultural Foundations, $760; Cooperate Charities, $200 ; Council of North County Drainage District, $50; Council for International Visitors, $100; Council for Continuing Education for Women, $100; Martin County Country Club, $30; Dade County Community Relations Board, Equal Employment Opportunity Task Force, $2,840 ; Dade Foundation Inc., $200. Daughters of American Revolution, $25 ; Diversified Cooperative Training Club, $25; Debbie Road Memorial Service League Foundation, $400 ; DeMolay, Order of, $20; DeSoto Celebration Inc. (Pageant), $150 ; Disabled American Veterans Posts, $135; Easter Seals, $100; Thomas Alva Edison Foundation, $400; Edison Pageant of Light, $125; B.P.O.E. Elks, $117.57; Exchange Clubs, $180 ; Executives Association, $9.36 ; 4-H Clubs, $1,230; 52 Association, $50; Fair Associations, $1,150; Fairchilds Tropical Gardens, $500; Fellowship of Christian Athletes. $85 ; Fire Departments and Fireman's Associations, $1,765,50; Florida Ballet, $250 ; Florida Cattlemen's Association, $100; Florida Cross & Sword, Inc., $525; Florida Foundation for Future Scientists, $200; Florida Engineering Society, $110. Florida League of Municipalities, $500; Florida Letter Carriers, $25; Florida Prosecutors Association, $100; Florida Public Charities, $200 ; Florida Recreation Association, $15; Florida Soil Conservation Society, $300; Four Freedoms Civic Club, $50; Freedoms Foundations, $1,000; Future Farmers of America, $140 ; Friends of the Retarded, $25; Garden Clubs & Flower Shows, $1.851.74; Girl Scouts, $1,555 ; Goodwill Industries Units, $1.00; Hadassah Chapters, $45.82 ; Handicapped of South Broward Inc., $12; Ella Piper Harvey Memorial Committee, $30. Heart Fund Associations, $350; Helping Hand Inc., $15; Hialeah Managua Sister City Committee, $24; Historical Societies, $100; Home Builders Association, $20.07; Hospitals and Nursing Homes, $22,201.12; Improvement Associations, $125; Independent Order of Odd Fellows Lodges, $30; Jewish Welfare Federation, $25 ; Junior Achievement Units, $1,756.25; Junior Chambers of Commerce, $1,246,58; Junior Conservation Club, $10; Junior Deputies, $10; Junior Service League Orthopedic Center, $112.50: Junior Welfare League, $15.85; Justice of Peace & Constable Association of Florida, $10; Kiwanis Clubs, $1..22.90. Knights of Columbus, $30; League of Women Voters Chapters, $75 ; Libraries, $219; Lions Clubs, $617.98; Little Theatres, $100; March of Dimes Chapters, $552.36; Marine Corps Leagues, $150; Mental Health Associations and Foundations, $1,037.50; Merchant Association, $75; Military Order of World Wars, $20 : Loyal Order of Moose, $102.50 ; Moral Rearmament Program, $28; Museum of Arts, Science, Natural History, etc., $1,990 ; Music Clubs, $3,502.07; Natural Association of Postmasters, $50. National Association of Power Engineers, $100: National Council of Crime & Delinquency, $270; National Municipal League, $100; National Social Welfare Page 20
Last year, the commission approved a $60,000 contribution from Florida Power Corp. to Florida Presbyterian College. That was nearly half of Florida Power's total contributions for the test year. The PSC also approved $250 in contributions to seven out-of-state colleges by General Telephone Co. of Florida. Commission policy, as outlined by McClellan, allows for charitable and civic contributions and dues to be put in the rates only if they are itemized in a report during the rate case investigation. Political expenses or dues or donations to social clubs are not considered legitimate costs for rate purposes by the commission, McClellan said. He added that such expenses are charged to the stockholders "as a matter of policy and probably as a matter of fact.” He couldn't be sure. He couln't be sure because expenditures described as vaguely as “various contributions" totaling $23,379 received commission approval in one case last yearand neither McClellan nor the commission asked for details. He couldn't be sure because Florida Power & Light Co. (FP&L) has been collecting $151,416 in unspecified contributions and dues every year since its last completed rate case in 1964. In its current rate case, FP&L is asking the commission to raise that figure to $367,090 and include such items as a $300 gift to the “tax assessors association" and a $30 payment to the Martin County Country Club. Records indicate the PSC staff questioned General Telephone's $1,000 donation to Gov. Claude Kirk's War on Crime debt, but the commission approved it. It also approved a payment of $655 to the University Club in Tampa and numerous Commerce Clubs and other agencies which appear to be almost entirely social in nature. "We don't know what they are,” McClellan said of many of the itemized recipients. “And we usually don't check it out because the amount is so small." His staff, which varies in size between eight and ten accountants because of rapid turnover, has little time to identify agencies itemized-or even to demand more detail. By the same token, McClellan couldn't be sure whether companies are making money or losing money under a procedure which makes it possible for them to pocket rate revenue supposedly earmarked for charity. Florida Power, for instance, reported $182,247 in dues and donations for the test year ending Sept. 30, 1964. So the commission added that figure to the company's rate structure when it reduced rates in 1965. In a separate report, filed annually with the commission, Florida Power said its actual 1965 contributions were $125,641 and its civic club dues and expenses were $15,613. That totalled $141,254–or $40,993 less than the new rates were to provide annually. Did the company realize a gain? “Theoretically, yes," said McClellan. He said the PSC doesn't study company dues and contributions between rate cases. Under the system, figures are frozen into a company's rate structure until the company, PSC, or the public files for a new rate case-during which new reports with new figures are considered. The company, meanwhile, can contribute more each year than the last case allowed and charge it to the stockholders, or less than the allowed and keep the difference. In the case of Florida Power & Light, stockholders apparently are absorb. ing $211,674 in excess contributions reported for the year ending May 31, 1968. That is why the company seeks to increase its contribution allowance by that amount in its current rate ca se. Chairman Mayo said dues and donations amount to "peanuts” when spread among all of a company's customers. McClellan agreed, estimating the total impact at about one cent on the average monthly bill. Florida is not alone in allowing dues and donations to be charged to utility customers. U.S. Sen. Lee Metcalf, D-Mont., said in 1963 that about half the states did so. Even the Federal Power Commission, which banned the practice for many years, reversed itself in 1964, decided that "contributions of a reasonable amount to recognized and appropriate charitable institutions constitute a proper oper ating expense.” Page 21
They are visited or telephoned almost daily by the highly organized utilities but seldom by the unorganized customers. They are not trained in the vital regulatory field of economics, law, engineering or accounting, and must depend entirely on the guidance of others. They get much "guidance” from the companies, some neutral guidance from the PSC staff, but little guidance from the customers, who, incidentally, foot the bill both for the companies and for the staff. They must seek relection every four years, and hence worry about campaign money during the last two years of any given term. Former Florida PSC chairman Alan Boyd acknowledged 10 years ago the problems created by statewide election of Public Service Commissioners. “There is little interest in the commission political campaigns,” he wrote, "and little knowledge on the part of the public of whom or for what they may be voting." Boyd, who later became the first U.S. secretary of transportation, and a candidate's ability to raise money for his campaign is therefore "severely restricted" and utility companies “are in a position to exercise tremendous power in selecting the candidates." He also noted that it usually takes a new commissioner at least two years of his four-year term to understand the complexities of utility regulation, and that "he then spends the rest of the time worrying about whether he can be reelected." Boyd recommended the so-called "Missouri Plan" of selecting commissioners, Under it prospective commissioners are “nominated by the governor, supposedly to insure against election of commissioners whose only qualification is a hefty campaign treasury or the right party affiliation. One name is nominated for each vacancy. The nominees are then placed on a ballot and voters may mark "yes" or "no" beside each name, thus retaining supreme authority in the people. Boyd also recommended six-year terms for the commissioners—the terms used by 35 of 55 regulatory commissions in other states, according to a recent U.S. Senate committee report. His bill incorporating these features died in a legislative committee and PSO members continue to be elected statewide to four-year terms. As a result, three career politicians (all Democrats) with no training in the technical or professional fields involved in regulation, now head the PSC. Law requires that they conduct their hearings like a court-but none of them have law degrees. Their responsibilities require decisions involving questions of economics, accounting, and * * * those fields, and none of them are required to have training in those fields, and none of them do. Some of their own staff members complain privately that this lack of training makes it difficult to get technical points across to the commissioners. While in office, the commissioners are subjected to what one attorney called "constant pressure and lobbying" from utility representatives. “The people who contact them are the utilities,” he said. “You don't have the consumers coming up to talk to them once or twice a week." The attorney asked not to be identified. He represents a utility company before the commission. Consumers, he said, have no organization with the money, the will or the know-how to match the utilities in their "informal discussions" with commissioners. He pointed to the PSC's handling of the corporate federal income tax surcharge as an example of the results. The PSC granted two major utilities permission to pass the surcharge on to their customers. It was learned the commissioners ignored the recommendation of their own general counsel in approving the requests without a public hearing. Utility representatives had convinced them such action was proper. A furor ensued, with one state senator threatening a legislative investigation. The commission rescinded its order and told the companies to return what money they had collected. In a public hearing the situation is usually the same. Companies haul in mountains of prepared testimony and hire some of the nation's leading economists and other experts to advance the company point of view on a regulatory issue. Page 22
For 82 years, the State Legislature has been quick to assign new duties to the regulatory agency--but slow to grant it the powers needed to carry them out. Utility opposition, legislative inaction and, in some cases, PSC refusal or inability to use the powers available, have combined to keep regulation somewhat less than effective. It began in 1887 with creation of the “Florida Railroad Commission." It continued to 1947 with the “Railroad and Public Utilities Commission"; to 1963 with the "Public Utilities Commission,” and finally to 1965 with the PSC. The change in names reflected the change in workload-always heavier. Today's PSC has jurisdiction over all telephone and telegraph companies, all privately-owned electric and natural gas companies, 218 private water and sewer companies, 15 railroad or railroad terminal companies, and 11,412 buses, trucks, taxicabs, and other motor carriers operating in this state. Ferries, toll bridge companies and canal companies, as well as dump trucks, transportation brokers, freight forwarders, and movers also come under its jurisdiction. The PSC is responsible for fixing fair, reasonable and compensatory rates for businesses under its jurisdiction and for setting and enforcing standards of service, efficiency and safety. It must see that the operator answers when you dial “0,” that some buses run on time, that the gas heater doesn't run out of gas or the refrigerator out of electricity, and that these and other services are available at fair prices. As a footnote, it's also supposed to help the attorney general make sure bookies don't use the telephone for gambling purposes. It has been a "catch-all” agency for the Legislature-a good spot to put a job that doesn't fit anywhere else. At least one committee of the Florida Legislature apparently feels some of the jobs don't fit together anymore. The House Committee on Government Reorganization proposes abolishing the PSC and putting public utilities under a new Department of Business Regulation-along with banking and insurance. Regulation of common carriers, the committee feels, might better be handled by the Department of Transportation. The Committee might have a point. Growth of federal regulatory activity over railroads has dwarfed state responsibilities in that area. Most motor carriers already are regulated in some respects by several state agencies (the Transportation Department, the Department of Agriculture) and it's not uncommon to find a PSC inspector, and several other state agents checking one truck for several purposes all of which could be accomplished by one man. Growth of other utilities, meanwhile, especially the telephone, electric, and natural gas companies has been phenomenal. The State's six biggest privately-owned telephone and power companies alone now serve 4.6-million customers and had a gross investment of $3.5 billion at the close of 1967. Yet the PSC's largest single department is devoted entirely to transportation; it's largest single request for new staff this year is for transportation; and most of its general professional departments (accounting, rates, legal) must split their time between the giant utilities and common carriers, That's why comparison of the PSC staff with those of other state utility commissions is invalid-many states have separated boards for transportation, utilities, and other businesses. The biggest problem is separating common carriers from utilities would be ratemaking and the powers and technical staff it requires. PSC Chairman William T. Mayo notes the Transportation Department, under the House plan, would have to be granted legislative powers similar to those of the PSC in order to set common carrier rates. He expressed no opinion on the possible split-but voiced reservations over putting utilities under a large department with other duties. "You might create a monster," he warned. He might have added that a “powder puff' can result if the Legislature fails to grant the PSC or any new regulatory body powers vital to effective consumer protection. The 1969 Legislature could consider other problems which weaken utility regulation and the consumer's voice. Among them : Page 23
that the Public Service Commission of Florida does not examine the private utility books at all ? Mr. KELLY. No, sir. Senator GURNEY. They do examine them? Mr. KELLY. Yes, sir. Senator GURNEY. That I want to know, because the statement you made, as I read it, would indicate that they were not looking at their books and therefore are not doing any kind of regulation at all. Mr. Kelly. No, sir; not that they do not look at them, but that they do not look at them in the detail that they should. Senator GURNEY. Does any regulatory body look at your books? Mr. KELLY. We have a five-man commission and our records are subject to inspection by anyone at any time and they are audited once a year. Senator GURNEY. But actually, there is no satisfactory agency that examines your books or the books of any Florida municipal electric utility; is there? Mr. KELLY. Well, I guess in the strict sense, the citizens are the regulatory agency. They can examine them at any time they choose and they can take us out of office and elect others. Senator GURNEY. Do they ever come down and look at them? Mr. KELLY. Yes, Mr. Chairman. Quite often, we have citizens who get the financial statement and they are authorized to scrutinize them in some detail; yes. Senator GURNEY. The point here is that while we might argue that the Florida regulatory commission ought to have a greater staff , actually, they have some regulation and the municipals do not have any; is that correct? Mr. KELLY. Except through the people. Senator GURNEY. With regard to the comparison between California and Florida, these comparisons often are not very fair. Do you know what the California commission regulates ? Mr. KELLY. No, sir. Senator GURNEY. Well, I really do not see, Mr. Kelly, how you can make an honest statement before a Senate subcommittee unless you have some idea of the comparison of regulation. Mr. KELLY. I merely tried to relate this, Senator, to the customers in California against those in Florida. They could be related in many other ways, either related to sales or revenues or different forms that it could take. I merely used the example to show how understaffed the Florida commission was with respect to that in California. Senator GURNEY. I recognize that. I see the point made, but as I say, I do not think it is fair unless you make a true comparison. Let us take a look at the two commissions here. Here is what California regulates and here is what Florida regulates. In electric utilities, California regulates 16 and Florida regulates five. Gas, they are fairly even, 17 companies in California, 16 in Florida, although it does not give any indication as to what size. Again, not a true comparison. Telephone companies, 45 in California, 20 in Florida. Here is an interesting figure: Water companies, 522 water companies are regulated in California by that commission, 36 in Florida. See what a difference. Page 24
You get over into the field of petroleum and the California Public Utilities Commission regulates 147 companies. Florida does not regulate any. In the field of steam, California regulates two, Florida, none. Then there is a miscellaneous lot here, 49 in California, none in Florida. Then you come over to railroads. California regulates 28, Florida 13. I did not know we had that many railroads in Florida. I will have to find out where they are, And street railroads, California, 134, none in Florida. Here is an interesting one; motorbuses, California, 498, Florida, 17. Then we go over here to steam lines; 37 in California, and none in Florida, Contract carrier trucks, 228 in California, none in Florida. At least, there is no information on that. Air lines, in California, 34, none in Florida. I could go on and on and on. This is not a true comparison at all. The information is meaningless. Mr. KELLY. Well, as you may or may not know, some of the regulation as far as the water companies in Florida has been delegated to the county commissioners, based on size. So, yes, I would agree that there is some disparity. I think if the committee chose, it could write the Florida commission and the California commission and get them to detail in exact number the people who are charged with the responsibility of regulating only an electric utility. I think the same disparity that I have offered in my statement would be shown to exist. Senator GURNEY. Of course, we do not know. Maybe there is a viable comparison, but from this testimony, we cannot see it. Incidentally, I notice your testimony indicated that a bill was introduced in the last session of the Florida legislature to place REA's and municipals under the jurisdiction of the Florida Public Service Commission. Did you support that bill? Mr. KELLY. No, sir. Senator GURNEY. You did not? Mr. KELLY. No, sir. Senator GURNEY. That surprises me. Do you not think that municipal utilities ought to be regulated ? Mr. KELLY. They are regulated by their consumers and their elected officials. Senator GURNEY. Your testimony, then, is that the Public Service Commission of Florida should regulate utilities, but municipals should be completely free? Other than the taxpayers? Mr. KELLY. Well, to put it differently, they are taxpayers and they are citizens and the consumers have the say in electing their elected officials. I think this is about as effective regulation as we could get. Senator GURNEY. I do not know, but, I used to be a mayor, and I do not think that the regulation of utilities is actually very effective in the hands of the citizens themselves. Mr. KELLY. Well, if your city was Winter Park, I believe you were served by private utilities, not city. Senator GURNEY. We were. The area next door was served by Orlando utilities. I do not think regulation would have been effective had the citizens of Winter Park been protected only by themselves as far as the Florida Power Corp. is concerned. I think we ought to have a regulatory body, the Florida Public Service, to do the regulation. I think the municipals ought to have the same. What is fair for one is fair for another. They are in the same business. Page 25
Mr. KELLY. I was not aware that they were at one time a private utility. In my memory, what dealings I have had with Key West, they have been municipal all the time. Senator GURNEY. I think if you will check, that is the case. Mr. KELLY. There is one in your area that received quite a bit of notoriety, in your sister city-maybe you do not consider it a city or a town, Winter Garden. They carried on quite a battle on a franchise arrangement within courts for several years. I will not bore you with all the details, but it was quite a lengthy case and can be easily obtained through the staff members of the committee, which might throw some light on the subject and make some interesting reading. Winter Park chose not to sign an additional franchise under the terms offered by the company and the battle went on Senator GURNEY. Winter Park? Mr. KELLY. Winter Garden, I am sorry, until the commission was completely changed. That period of time elapsed until they had people more favorable to the terms being offered by Florida Power Corp. I would suggest that you read it. Senator GURNEY. I am not familiar with the case. I do not have any other questions. Senator METCALF. Thank you, Senator. I think Senator Gurney has made a contribution in revealing and pliciting information for the record. All of us on the subcommittee are grateful. I suggested that I would like to have some information about the Florida power pool that Mayor Richardson talked about. Would you tell me who are the members of the Florida power pool? Mr. KELLY. Senator, I believe I am correct in this, that it is Florida Power & Light, Florida Power Corp., Tampa Electric Co., Gulf, and the city of Jacksonville and Orlando Utilities Commission. Senator METCALF. And they have an agreement? Is it a more elaboraate agreement than the one you describe between Florida Power & Light? Is it a regular pooling agreement? Mr. KELLY. My understanding is that it is an agreement between these members and they have what they call the Florida Operating Committee. I do not have knowledge of any written pooling arrangement between the private Senator METCALF. You think, as far as you know, it is a purely oral agreement ? Mr. KELLY. That is correct, sir. Senator METCALF. There has been some testimony here that the city of Jacksonville and the city of Orlando are members of that pool. Mr. KELLY. Yes, sir. Senator METCALF. If you know, will you tell us whether or not the city of Jacksonville and the city of Orlando had to make certain territorial concessions in order to become members of that pool? Mr. KELLY. Well, the city of Orlando entered into a territorial agreement with Florida Power Commission. Senator METCALF. They did make territorial concessions! Mr. KELLY. They did make a territorial agreement, which was to exist for some 15 years and I think 13 years of it have run now. And just the series of events as far as the tie and territorial arrangement that were entered into, I am not certain of, but the interconnection Page 26
Mr. KELLY. I am not too well versed in this particular area, but at the suggestion of Professor Richardson, I called the chief counsel of the Florida commission last week. I was unable to reach him, but I talked to a gentleman in the legal department and asked him just what methods they used in arriving at rate bases and so forth. About all that I could glean from him was that they used many. They might use yearend in one instance and another one fully depreciated costs, and it just seemed that, I think his words were that they were exploring in all of these areas and had not gotten really definitive in methods with which they wanted to treat these various utilities as far as establishing their rate base. Mr. TURNER. Well, as the record stands now, before this committee, we do not know of any written documents or written contracts between any of these private utilities with respect to their interconnections. Would it not be important, for instance, to have spelled out the type of wholesale rating which would be assessed (the standby power which would be required, the splitting of revenues, and the fiability, the bonding, as well as various cost allocations and utilization of the lines? Am I not speaking of things that you recognize as being important in a valid contract between two private companies? Mr. KELLY. Oh, yes, sir. Mr. TURNER. Would this not be something important in the event of substantial litigation? Mr. KELLY. Yes, sir. Mr. TURNER. Would not such substantial litigation involve costs to the private utilities, and actually cost to the consumers? Mr. KELLY. Yes, sir. Mr. TURNER. As far as we know, there is nothing in the record to show any binding written contract, which certainly must exist under the law, between these companies that are charging many hundreds of thousands of dollars in terms of electricity and incurring continuing liability back and forth between the lines; is that correct? Mr. KELLY. That is correct, of course, as you may or may not know, the Florida Power & Light presently, I think the case is now in the court of appeals, denied FPC jurisdiction, since they say they are wholly intrastate. Mr. TURNER. Well, did you go to the Florida State Utility Commission with this problem? Did you go and request a hearing and a case to be heard by the Florida State Public Service Commission on your problem with respect to the Florida Power Corp.? Mr. KELLY. No, sir; we had learned that the Florida commission did not have jurisdiction over anything other than retail, so we did not approach them. Our entire complaint was largely with the Federal Power Commission. Mr. TURNER. So that the Florida State Public Service Commission has no jurisdiction over anything but retail rates and the Mr. KELLY. That is correct. Mr. TURNER. And the Federal Power Commission is the one that has jurisdiction over wholesale rates? Mr. KELLY. That is correct. Senator METCALF. Now, wait a minute. Mayor Richardson testified that you did go to the Florida Public Service Commission for a copy of that agreement and were refused. |
