(return
to previous page)
DID INVESTOR-OWNED UTILITY
COMPANIES BYPASS FARMS? --- Part II
You may recall that the last issue of
"Shareholder News" contained an article describing some of
the reasons why investor owned utility companies by-passed farms on
their mission to electrify America's cities and towns. Here is one
more reason IOUs had to by-pass rural customers.
Because of errors committed by public
held companies in all types of industries prior to the stock market
crash of 1929, various federal laws and regulations were enacted to
try and prevent any similar market crash from happening again. One of
these laws, the Public Utility Holding Company Act of 1935
specifically addresses company asset values and the earning capacity
of those assets.
Utility companies have adopted
internal policies to avoid regulators' sanctions while at the same
time protecting their investments in infrastructure. Although these
internal policies take different forms, they generally require
investments in new construction be paid back through energy sales
within a specified time frame - i.e., three years - or the new
customer must contribute to the cost of the new construction.
The need to avoid regulators'
sanctions, coupled with the monetary explanations contained in the
last issue of "Shareholder News", clearly shows that the
investor owned utility companies were between a rock and a hard place
when it came to providing electrical service to rural customers in the
1930's. It is also important to keep in mind, that these stated
problems were at the root of the formation of the REA, which was
created during the 1930's to electrify rural America.
Additionally, the Public Service
Commission only allows investor owned utility companies to charge
customers for installations that are "used and useful".
Therefore, IOUs must be very cautious when building facilities or the
PSC could prevent them from including those facilities in the rate
base. Rural Electric Cooperatives, on the other hand, have no such
restrictions placed upon them by any regulatory agency. Rather, if REC
management decides to build a particular facility within their system,
whether it is needed or not, their ratepayers will pay for that
installation through their electricity rates with no third party
oversight whatsoever.
(return
to previous page)
