The recurrent problem of how effective a state commission's regulation of a domestic public utility, controlled by a foreign corporation holding company, can be, is raised by the recent case of People v. Michigan Bell Telephone Co. The Michigan Bell Telephone Co. is a subsidiary of the American Telephone and Telegraph Co., and, as the record and opinion in the case make clear, is fully controlled by it and operates as an integral part of the American Company's national organization. The American Company owns 99.99% of the Michigan Company's stock and in the various reports of the former it is repeatedly stated that the management and policy making of the entire organization is carried on by the parent and not the various subsidiaries. Until recently contracts subsisted whereby the subsidiary paid the parent 4½%, (later reduced to 4%), of its gross annual revenue as rental for certain mechanical equipment, viz., receivers, transmitters, etc., and for expert services by the parent in the way of research, development of the art of telephony and legal technical advice. In fixing rate bases the various subsidiaries have contended that such payments should be allowed as operating expenses. On the other hand, utilities commissions have contended that, because of the substantial identity of parent and subsidiary, the cost to the parent of rendering-- those services, rather than what the subsidiary paid, should be the proper item of operating expense--that, in the practicalities of the situation, ultimate profits to the stockholders are represented by those payments. In the enforcement of this contention the commissions have been faced with two difficulties; first, to establish the soundness of it as a matter of substantive law; second, to bring the parent foreign corporation within the state's jurisdiction, or in some other manner make such a rule effective against it.

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