Issue 9

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.