Does the utility industry have the financial strength sufficient to meet the combined challenges of: (1) sharply increasing and highly volatile fuel and purchased-power costs; (2) significant...
PUHCA Companies: Caught By Superfund
court explained. However, if they became directly involved in the operation of the subsidiary's facilities-"operation" meaning to control the functioning of a facility-liability will attach to them. In the organizational context, according to the Supreme Court, "operation" also means to conduct the affairs, manage, or operate a business. For Superfund's purposes, the operations should have to do with leakage or disposal of hazardous waste or with compliance with environmental regulations.
Although Bestfoods bars some claims, a special and different case arises when a public utility deals with sites operated in the earlier holding company era. Holding companies in the pre-PUHCA period often required their utility subsidiaries to assign very broad powers to affiliated service companies that actually designed their facilities, managed their operations, and generally ran their significant affairs. Under a typical service agreement, the utility signed over the rights to manage its plants and property, provide local staff, conduct purchasing, secure financing, and report on, and account for, operations. A separate agreement provided engineering and construction services. 7 Another major holding company used a service agreement providing general supervision over operations, management and development of the utility's properties, personnel and organization, purchasing, finance, accounting and auditing, corporate matters, legal work, and rate matters. 8 A third major holding company used affiliates as financial and operating manager, as well as for procuring capital, employing a clerical staff, keeping the books and records, making reports, purchasing labor and materials, and construction work. The FTC report concluded that the contract "provided for the complete operation of the properties." 9
In another instance, the FTC report noted that "78 classes of activities are listed under general management in the contract of Electric Bond & Share Co. The service organization may be made the operating manager of the client companies' properties with the authority to supervise and direct the management and operation of such properties. … There is little that it is not expressly or impliedly authorized to do." 10
These broad, forced transfers of management and operational authority from the utility to a holding company or affiliate naturally raise a question: Which party is the "operator"-the utility, or the holding company or service affiliate?
Seeking to avoid liability, an ex-holding company will search through the PUHCA simplification process for some indication that it is exempted from future claims arising from its past ownership or operation of utility subsidiaries. Although there has been no ruling squarely on point, where these arguments have been raised, the courts have found them unconvincing. 11
A factor reducing the number of claims against restructured prior holding companies or their affiliates may be the difficulty of proving sufficient facts to support operator liability. Each year there are fewer survivors to provide a testimonial basis for such a claim. To make a case, resourceful investigation is needed to locate adequate documentary or live evidence. In some instances, the surviving data may be insufficient to show the managerial and operational practices of the holding company or affiliates.
Experience in the recent cases brought by public utilities has shown the way to