[BETA] Fortnightly

An analysis of holding company liability under federal Superfund and parallel state laws.

Environmental cleanup to meet federal and state requirements carries substantial costs that tend to rest disproportionately on public utilities. Looking back at their corporate history, a few utilities have discovered some unique tools to reduce this economic burden.

The federal Superfund and parallel state laws ¹ authorize the government to issue site study and cleanup orders to private parties, government actions against private parties to recover public funds used in site studies and cleanup, and actions between private parties to recover (or at least share) the costs of studies and cleanup. Although there is no adequate tally of the total cost of these programs, the federal Environmental Protection Agency (EPA) reports that it spends about $1.3 billion yearly and estimates that it secured private party cleanups and payments worth $16 billion over the first 20 years of its program.

Public utilities are easy targets in this process. Being highly visible public citizens, they have a penchant for compliance with the laws. Their facilities, built to last, use solid construction techniques that should minimize environmental mishaps. But utilities are heavily exposed to federal and state Superfunds because these laws impose "no fault" liability for actions of the distant past that were totally acceptable, even state-of-the-art, when taken. Years or decades later, if environmental contamination (or even just threatened contamination) is found, this can trigger liability.

Superfund liability is perpetual. Enterprises that are responsible for long-past activities often cannot be found because they have ceased operations, gone out of business, sold their assets, or otherwise ended. Public utilities rarely disappear, however. Utilities may merge, but in that case the successor carries the liabilities of both its predecessors. Utilities usually do not sell their assets or franchises because of concerns about regulatory and other consequences. Utilities rarely enter bankruptcy. Thus, public utilities become large contributors to the correction of environmental problems that may originally have been created by the actions of many parties.

Height of the Holding Companies

In a few recent instances, public utilities have found relief under Superfund in their own past history. They have secured significant recoveries toward their site study and cleanup costs from corporations that previously owned them 50 or more years ago. Their success arises from the unique and largely forgotten structure of many public utility holding companies of times past.

Until the mid-1950s, holding companies were the most common structure of ownership of "fixed" utilities (electric, gas, telephone, water and sewer companies), as well as a large number of "traction" companies. Individual local utilities, franchised to serve a single town or city, were owned by large, publicly traded holding companies. An investigation by the Federal Trade Commission (FTC) found that 16 very large holding company systems accounted for 76 percent of the electric energy generated in the United States in 1932; 15 holding company systems controlled 80 percent of the gas pipeline mileage; and 44 holding companies produced 66 percent of the manufactured gas in this country. ² In any large or small community, at