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witnesses, fix rates, make valuations, regulate the issuance of securities, limit competition, determine standards of service and enforce rules and regulations subject in all cases to court review. Other States have practically no effective State regulation and Delaware has none at all. This absence of uniformity, however, is a matter that can be corrected by Jegislative action by the several States as their need of regulation in the public interest is recognized.”

Page 207, chap. XII: Within the field to which it is applicable, State regulation in those States in which it is best organized and administered is quite effective and, subject to the limitations discussed above, determines the conditions under which the power industry is conducted."

Page 186, chap. XII: *Present-day control is exercised mainly through the supervision of security issues as provided in the various State laws in order that they may bear a definite relationship to the investments used in the production and distribution of power.

Today in the States in which regulation is most effective, every issue must be passed upon in advance by the Commission, and some States exercise considerable control over the use made of funds raised. The State, after authorizing the issuance of securities, is in a sense morally bound to safeguard the interests of investors by the allowance in future rate cases of rates that will yield a fair return upon the securities authorized.

For these reasons, new issues in a number of States are allowed only or the purpose of acquiring additional properties, expansion of existing plants, or for refunding purposes, or for the reimbursement of the company's treasury for legitimate expenditures already made for properties.”

The attitude of the utilities toward State regulation is best illustrated by the statement of Mr. Preston S. Arkwright, president of the Georgia Power Co., who testified before the Federal Trade Commission (vol. 18-19, p. 150) as follows:

So that, I would say the National Electric Light Association, the industry, would be interested in seeing that the Commissions have the power and capacity to efficienctly regulate and control them, and that that fact is understood by the public.”

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SUPPLY AND REGULATION OF ELECTRICITY IS A STRICTLY LOCAL MATTER

It is unquestionably in the mind of the public that the supply of great quantities of electricity to all points of the United States is already, or shortly will be, the established practice and that this great quantity of power goes without regulation of any of the State or local public-service commissions. The picturesque and dramatic aspects of the transmission of electricity have been so publicized that the public has come to conclude that there is no limit short of the continental confines of the United States to the transfer of energy.

Nothing could be further from the truth.

Far from moving over great distances, most of the electircity now used in the United States never gets more than 20 miles away from the power house where it was made. Notwithstanding the existence of thousands of miles of transmission lines and the occasional transfer of power over quite a distance during an emergency, the travel of the average kilowatt-hour produced in the United States from its point of production to its point of consumption last year was only about 22 miles.

It is apparently the aim of the Federal Trade Commission to support the provisions of title II of the Public Utility Act of 1935. Under these conditions, on top of the existing State and municipal regulatory machinery there is added & distant Federal bureaucracy; with its own rules as to rates, service, and accounting and with power of veto over any decision of the State or municipal bodies which might be in conflict with its policies and purposes. In place of local regulation, with first-hand knowledge of conditions, there is set up another body in Washington having superior jurisdiction, but so far removed from the actual scene of events as to make its operations interminable, mechanical, and swayed by political prejudice. The results would be that many companies, though considering themselves strictly intrastate, would find themselves, nevertheless, drawn into Federal regulation by the Washington Commission in about the same fashion as intrastate railroads have been under the Interstate Commerce Commission.

The result to the consuming public would be as disastrous as to the utility companies themselves.

Progressive management under private ownership would be supplanted by Government bureaus far removed from local responsibility. In place of being helped by local men, intimately acquainted with local conditions, the consumer

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would be compelled to journey to Washington and there to wander about is the endless corridors of bureaucracy and be passed from pillar to post before he could find an official who could authoritatively answer even his simplest complaint.

A practical example of what awaits the public in the matter of electric service under the control of Washington officials is given by the experience of the various telephone and telegraph companies following the partial destruction of their lines in Delaware and Maryland during the severe storm of January 22–24, 1935 (as described in the April 1935 issue of Telephone Engineer). Although the companies sought the Federal Communications Commission's permission to rebuild the lines shortly after the storm, this was not granted until 2 months later, and while they were waiting they were forced to maintain service as well as they could over temporary cables laid on the ground and attached to fence posts and trees and by diverting long-distance calls to other lines.

RURAL ELECTRIFICATION Fourteen years ago the electrical industry commenced the study of rural electrification. The problems presented were numerous and many technical. In cooperation with the Department of Agriculture, State agricultural colleges, farm associations, experimental stations were inaugurated and conducted over a period of years, perhaps the most successful one being the Red Wing project in Minnesota. That the study has been helpful to the farmer is best attested by the increase in rural customers from the inauguration of the service to date.

Farm electrification
(Figures on electrified farms do not include those with individual lighting plants)

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Dec. 31 of year

1923. 1924. 1925. 1926. 1927 1928. 1929 1930. 1931. 1932 1933 1934.

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Much material was supplied the Commission upon the question of rural electrification. The record of the Commission contains the facts and figures above enumerated and had they been studied with an open mind, rather than the constantly suspicious attitude assumed, the Commission would not be able to state that the development of rural electrification was “a sort of sop to the farmer."

CUSTOMER OWNERSHIP Colonel Chantland characterizes customer ownership of securities as a "misnomer; it is not ownership but is an investment or a lending of money for some body else to play with” (p. 98).

it would probably not be overstating it, to say that the losses to investors in utility securities, attributable to utilities' campaigns for selling, and the increase in prices effected thereby, were in the billions” (p. 101).

It is needless to point out that the customer and employee ownership of the securities of the operating electric light and power companies is in conformity with the practice of industry to have their customers participate in the welfare of the company.

The utility companies have, since 1914, been among the leaders in this movement. The most recent tabulation shows that, at the end of 1931, there were 68,946 employees and 1,097,872 customers who owned stock in the operating

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electric companies. Great pains were taken to safeguard the fortunes of those who participated in these investments. The 10 cardinal principles of customer ownership were formulated in 1924 and again and again brought to the attention of all concerned.

THE TEN CARDINAL RULES OF CUSTOMER OWNERSHIP (Prepared by the customer-ownership committee of the National Electric Light

Association, 1924) 1. The sale of the securities must be direct from company to customer or through an agency expressly created for the purpose and controlled by the company.

2. The safety of the securities offered must be amply protected by property and earnings.

3. A minimum rate of dividends must be provided for insofar as honest judgment based on experience can foresee.

4. A reliable resale market must be maintained in some manner so that shareholders who wish to dispose of their holdings can do so promptly at nominal expense.

5. A partial-payment purchase plan must be operative in order to give every customer who can save a small amount monthly full opportunity to become a shareholder, and to encourage thrift.

6. The proprietary interest and responsibility of shareholders must be emphasized and the shareholders supplied regularly with information regarding their company and its affairs.

7. Loss of capital by shareholders in hazardous and fraudulent offerings from various sources must be guarded against by the rendering of authentic information and advice to shareholders.

8. The number of shareholders must be increased steadily and efforts should be made to avoid large individual accumulations of stock.

9. Employees must be carefully instructed in order that all representations made to customers or others are in line with the facts.

10. Managements must realize that customer ownership multiplies their obligations to the public and intensifies the trust reposed in them. It does not replace the constant striving for higher efficiency, good service, reasonable rates, courtesy, and progressive public-relations policies.

Colonel Chantland condemns customer ownership on the ground that the stock was largely nonvoting. He states that:

"In fact, the percentage of voting stock sold in these so-called 'customer-ownership campaigns' were entirely negligible. I believe the highest percentage voting stock sold in these customer-ownership campaigns for any one year was 7 percent, and it dwindled down in different years to 1 percent or one-half of 1 percent. These all were nonvoting stock" (p. 94).

It has long been the practice in American business that preferred stock should be nonvoting except under certain conditions. These investors were seeking a regular income. They were not assuming the position of the common-stock holders whose greater participation in the risks of an enterprise carries with it a voice in its management.

At the time customer ownership sales were made, the industry offered an investment to those of small means living in the territory of the company in which they were financially interested. A preferred stockholder has preference as to assets next to the bondholders. The people investing were primarily concerned with the rate of return. That the investment was safe is evidenced by the fact that even today, after prolonged attack on utility companies, approximately 94 percent of those preferred stocks are still paying to their owners the dividends called for. One must conclude that the purpose of casting aspersions on these stock sales is to impair the confidence of small investors in the industry.

ALLEGED IMPROPER PRACTICES IN PURCHASING COAL Colonel Chantland implies in the following testimony that the relationship of holding companies with their coal-producing subsidiaries was unethical.

“ Senator COUZENS. Did you find that the holding companies were purchasing coal for their respective operating companies?

“Colonel CHANTLAND. We had an investigation of that sort with regard to the Insull outfit, where it was hooked up with the Peabody Coal Co.; yes The Insulls were large holders in Peabody coal. That is the biggest one in Illinois.

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“Senator Couzens. So they got a profit two ways?
“Colonel CHANTLAND. Yes. They would get it one place or the other.
“Senator COUZENS. They got it both ways, did they not?

“Colonel ChanTLAND. It would all depend' how they marked it, up or down" (pp. 116–117).

The following testimony from the Federal Trade Commission's record shows that Colonel Chantland's testimony relating to this Peabody Coal Co. was unfair. (The Mr. Bass referred to was the examiner of the Federal Trade Commission who had investigated this company.)

“Mr. CHANTLAND. So the record may show we have not overlooked it, Mr. Bass, you will recall that when this inquiry was started intimation had come to us, which we supplied to you, that as a result of this Peabody ownership and the contracts, it was thought that the Peabody Coal Co. was billing, and the utilities interests were permitting coal to be billed to them at a dollar or two per ton over cost, so as to make the utility costs high; you will recall that fact?

“Mr. Bass. Yes.
“Mr. CHANTLAND. What did you find on that point?

Mr. Bass. I did not find anything to that effect. If such an unusually high price was paid, it might have been for a specially prepared gas coal, and that constitutes a very small percentage. The highest price paid by any of the utilities on the cost-plus contract was not over $2 a ton.'

In the report on the Peabody Coal Co. in volume 65 at page 247, exhibit no. 5811, about which the above questions were asked, the price to be paid for coal supplied by the Peabody Coal Co. is set out in one of their contracts as follows (p. 249):

“The prices to be paid by the utilities company for coal to be shipped hereunder during each contract year shall be mutually agreed upon annually by the parties hereto within 20 days of giving of annual notices hereunder and shall be in line with the price at which approximately the same tonnage of coal of similar character to be shipped under like conditions and at the same rate per day during the period that shipments are to be made, can be purchased on annual contract basis at the time that the utilities company serves notice on the coal company of the amount of coal of the various grades and sizes which it will require hereunder, unless the utilities company advises the coal company at the time of giving such notice that it prefers to pay the open-market prices at the time such shipments are to be made, in which event the open-market prices shall be charged, said open-market prices to be agreed to by the parties weekly in advance of shipments" (Federal Trade Commission, vol. 65, p. 7, 252). Respectfully submitted.

BERNARD F. WEADOCK
Vice President and Managing Director,

Edison Electric Institute. APRIL 29, 1935.

STATEMENT OF S. R. INCH, PRESIDENT ELECTRIC BOND & SHARE Co. Mr. Chairman and members of the committee, my name is S. R. Inch. I am president of Electric Bond & Share Co. and I present this statement to you on behalf of that group.

QUALIFICATIONS It may be in order for me to state briefly my qualifications. My background and experience is that of a public-utility operator of electric, gas, water, steamheat, and street-railway properties in this country and abroad.

Thirty-five years ago I was a shift operator at one of this country's early hydroelectric plants located near Butte, Mont., which later became a part of what is now the Montana Power Co. I remained in the Intermountain West for 24 years during all of which time I was engaged in various capacities in publieutility work

In 1913 I joined the so-called "Bond & Share group" as general superintendent of the Utah Power & Light Co. In 1918 I became its vice president and general manager. Early in 1924 I came to New York to join the service organization of the Electric Bond & Share Co. The next 5 years were spent in the field in connection with our supervision service, first, of domestic and later of foreign operating companies. In 1929 I returned to New York to take over the general direction of our supervision of domestic operating companies. In 1933 I Fas elected a director and made president of the company.

WHOM I REPRESENT

In this capacity I represent a group of some 800,000 investors and approximately 30,000 employees who respectively have supplied the money for, and operate, the properties which provide public-utility service to a total of nearly 10,000,000 people in this country. Generally speaking, it may be said that our group represents about 10 percent of the investors and employees in our industry and something less than 8 percent of the population served.

THE SENATE AND THE HOUSE BILLS There are some structural differences between Senate bill 1725 and House bill 5423 although they both are known to the public as the “Wheeler-Rayburn holding company bill." The principal differences are that the Senate bill is minus title III of the House bill, which puts under the control of the Federal Trade Commission the minutest details of the business of natural-gas operating companies, and that title II of the Senate bill, unlike the corresponding part of the House bill, does not place in the hands of the Federal Power Commission the regulation of retail rates for local electric service. However, the Senate bill through title I affects the natural-gas industry in the same manner as it does the electric power and light industry.

Where without sacrifice of clarity I could do so, the facts which I desire to present therefore refer to both industries. Where in the interest of simplicity I have used electric data only, it can usually be properly assumed that naturalgas figures, it included, would emphasize the importance of the information submitted.

THE FACTUAL APPROACH Legislation which may, and I think as now proposed inevitably will, destroy tremendous values of sound investment, dislocate two major industries and engender new fears as to the future of private capital in all lines of business in this country, should be approached on a factual basis.

Here you are required to consider whether the electric and gas industries as now constituted have done and are doing a good job in providing adequate and cheap service to this nation.

Here you have to consider the future of industries representing an investment of more than 15 billions of dollars which has been provided in good faith by some 10 millions of the citizens of this country.

These are questions too fundamental to be approached on the basis of mere emotional appeal, either as to what some of the proponents of this measure have termed our "indispensable widows and orphans” or as to their own horrific bogeys of crafty capitalists and buccaneering bankers.

It is therefore upon a strictly factual basis that I wish very briefly to present three main problems for your consideration.

First. What are these industries, what part have they served, do they serve and can they serve in our national life? Should they be nationalized, or can they be used, if accorded Government cooperation instead of Government competition, as a major channel in the putting of private taxpaying capital to work again and consequently as a means of helping to bring about that economic recovery which is our one great national need today?

Second. Are the history, accomplishments, and present position of the Electric Bond & Share group as to these industries such as to warrant, at your hands, the immediate dismemberment and ultimate destruction of a corporate group which is 100 percent publicly owned and the principal function of which, as I shall hope to prove, has been to take metropolitan service at less than metropolitan rates to small communities in sparsely settled territory?

Third. What will be the probable effects of this legislation, if enacted as now proposed, on investors, on service, on society and on recovery?

GRAPHICAL PRESENTATION The necessity of presenting these complicated questions to you in such a way as to accomplish the maximum of brevity, clarity, and simplicity has led me to prepare a number of small charts to illustrate the points I desire to emphasize. These charts, a set of which accompanies this statement, present in graphic form the results of studies made under my direction for the purpose of showing not only particular facts and groups of facts but also certain trends which seem to me to merit careful consideration.

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