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Senator MOORE. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Chantland, I did not catch your last statement.
Colonel CHANTLAND. I stated that we spread the entire picture of the propaganda machinery, with its objectives and methods, on our record before the summer vacation of 1928 so rapidly did we work on that end of it, while they were getting their economic studies prepared, and thereafter we kept filling in the record, country-wide, you understand, so as to meet the charge early made by them and repeatedly made by them, that what we were putting in the record was not a concerted campaign but merely the overzealous acts of a few underlings.
Of course, that charge was not true, and the report shows clearly that the whole thing was planned by those responsible, as I will show you gentlemen.
The CHAIRMAN. They do sometimes have overzealous underlings in these companies, all right.
Colonel CHANTLAND. Oh, yes. But in the case of the association propaganda, it was well and thoroughly directed from the top. That statement made by them was definitely disproven, and the record shows that the entire plan was devised and carried out by the responsible heads of standing committees, including the public relations committee, public policy committee, and executive committee of the National Electric Light Association.
That association represented, by their own say so, considerably more than 90 percent of the commercial industry privately owned.
The CHAIRMAN. Who was the president of the association at that time?
Colonel CHANTLAND. They had a different president each year. The managing director at the time we started was Paul S. Clapp. The managing head before that was Milton H. Aylesworth. Mr. Clapp was followed by Bernard F. Weadock, who continued until they put it out of its misery and formed a new so-called “ Edison Electric Institute", and he is vice president of that, with the same offices and files, but considerable changes, if you please, in their method of procedure. But very little is handed down now from the heads but most of it is now done by local committees and the companies. I think it is fair to state that. There had also been reveived the previous summer (1927), when it was learned that the Walsh resolution would be pressed for passage, the so-called “ Joint Committee of National Utility Associations. This had originally come into existence and functioned as a war-time agency.
Now, again it was set up, and in addition to its headquarters in New York it opened offices with a considerable staff in Washington. The American Telephone & Telegraph Co. withdrew. The Electric Railway Association took only a nominal part. The joint committee, therefore, became largely an instrument of the electrical and gas utilities. The American Gas Association cooperated throughout, but the electrical industry bore the major part of the expenses. Later on, when the joint committee ceased operating, the National Electric Light Association took over its expense burdens also.
As I have said, this propaganda campaign was directed by the responsible heads of standing committees from the headquarters of
the association in New York. As I have already told you, in response to a question, Milton H. Aylesworth had been succeeded as managing director by Paul S. Clapp, a former employee of the Department of Commerce. The director of publicity was George F. Oxley. The National Electric Light Association itself was divided into 13 geographical divisions, no. 1 division being the Canadian division. In each geographical division were State divisions. These State subdivisions sometimes included more than a single State, I mean under one designation.
At the same time there was set up, off to one side, a series of variously styled State committees on public utility information. They were listed by the National Electric Light Association as related organizations. But the National Electric Light Association had a standing committee whose duty was to supervise and direct the activities of these various State committees, and Mr. Oxley's correspondence is filled with items showing that he took a very active part in forming them and directing their activities.
What might be called the “rough stuff" of the local staff in propaganda matters was mostly carried on through these committees
The CHAIRMAN (interposing). What do you mean by “rough stuff"?
Colonel CHANTLAND. Well, some of it was fairly raw. Of course, it is not of the best quality if you do not coat it over nicely. A thing would not be successful propaganda, of course, if it were 100 percent opposition. That would be too on its face. But it is best when 90 percent is going along with the tide, and an item is slipped in here and there, that will thus be given a sort of sugar coating.
Senator MOORE. And sugar coating is used, is it?
Colonel CHANTLAND. It looks almost as if these committees were set off to one side so that the association could disavow them when it suited their purpose. In fact, such a disavowal was at one time attempted. When one president of the association suggested, about their labors, that each tub must stand on its own bottom, they tried to step out of the picture.
Now, I want to pass on to the expenditures so that you can see the size of these big budgets of the N. E. L. A., and whenever I use the term “N. E. L. A.", of course I refer to the National Electric Light Association. As we report in part 71-A, page 27, the budgets of the N. E. L. A. exceeded a million dollars a year.
And, by the way, I might as well stop here to tell the members of the committee that your clerk has received a sufficient number of copies for the use of the committee, of certain Federal Trade Commission documents that I think you will find valuable if you have time to give some study to this matter.
Part 73-A includes chapters 12, 13, and 14, of the Commission's final report to date, on the electric light utilities, and some small mention of gas on which we have just made a good start. The legal appendix attached are legal studies on a number of propositions that are pertinent to the proposed legislation, and will answer a number of questions that may arise repeatedly in the hearings, as they arose before the House committeee.
If you will turn to the table of contents of part 73–A, if the members of the committee have part 73-A before you, you will see the title of these seven appendixes. And I will refer to some of them more definitely as I go on with my statement. Chapter 12 of this final report, 73–A, is a survey of State laws and regulations regarding utilities and their holding companies. And, by the way, that is in summarized form, and somewhat states conclusions based on a much more extensive compilation which you will find in part 69-A, that is also handed you.
Part 69-A contains, and I refer to the second exhibit therein, a very exhaustive compilation of the constitutional provisions, the statutory provisions of the several States, with some of the pertinent decisions, what might be called leading cases touching utilities and holding companies. In addition you will find in part 69-A a compilation of proposals and views for and against Federal incorporation or licensing of corporations, which I think will be very interesting if you should go toward that end, and I make that statement even if I did have a part in making it.
Besides these you are also handed portions of part 72–A, which when complete—and, by the way, these are all that we have been able to get so far. We have not been able to get them permanently bound up to this time. But, as I started out to say, part 72-A when complete will contain chapters 1 to 11, which are the chapters that deal with the economic or financial part of the Commission's report. The particular chapters that I think you will find especially interesting are 4 to 9 inclusive.
Besides there has been handed to you a series of press releases prepared by Mr. Joe Baker of our staff. He is a good writer and an able man. And these press releases I am handing to you for this reason: They do touch on some of the high lights, of the summarized report of the Commission itself, and I take it one of the things the most of you are interested in is to see how sound the financial structure is.
I call your attention to press release no. 253. At the end of no. 253 you will find a series of tables showing, first, the gross totals of the 'inflations or write-ups, and following that, the amounts which
The CHAIRMAN (interposing). Do you call them“ inflations,”?
Colonel CHANTLAND. Yes, sir. I call them inflations or write-ups or improper items, or items based on nothing except the fiat of the board of directors. They ranged all the way from some that did have some foundation, to those that had no foundation whatever. Following the first page, which gives the totals by groups, you will find the amounts by subholding companies and also by operating companies in the several groups. Let this also be understood : At the time I am mentioning, as Dr. Splawn stated yesterday, this billion four hundred million dollars plus of write-ups represents what we have been able to nail down. It does not by any means represent all, nor does it represent the entire industry.
The CHAIRMAN. What was the total write-up that you claimed that you found?
Colonel CHANTLAND. As disclosed up to that time it was close to a billion and a half dollars. Let it be understood also that this sum would have been larger if the figures could have been made as of the time the write-ups were made, because, of course, at the time the examination took place, which was after a good many of them had occurred, changes had been made and items added, so that it was impossible to state it just as it was when it happened.
Now, when you speak of percentages of write-ups spread over the entire field, please remember this: That it does not in my judgment signify much, because obviously the percentage of write-ups (and some of them are comparatively free from it), when spread over the entire industry, does not give the picture. A much better way is to find out how much the write-up is in each instance.
Senator COUZENS. At that point let me ask you: Was this done on the theory of reproduction new?
Colonel CHANTLAND. Some of it was on reappraisals going toward that presumably. And these reappraisals, again, if I can state it clearly, were in all degrees of thoroughness or lack of thoroughness, as the case might be. Some of them were quite well done, and some of them
Senator COUZENS (interposing). When you say “well done", do you mean that they had an appraisal made of the value as of that time?
Colonel CHANTLAND. Yes; what I mean by "well done” is that a real inventory was made, and as to what was not physical property a careful estimate was made, I assume, and
Senator Couzens (interposing). When they did that did they fix the original write-ups by way of reproduction new less depreciation?
Colonel CHANTLAND. In some instances that was the attempt.
Senator Couzens. The purpose of that would be to comply with the ruling of the United States Supreme Court for rate-fixing pur poses, I take it.
Colonel CHANTLAND. Yes; but please understand that reproduction new is not the sole element. That is one of the elements. I think you know that it has gone to the point where it is regarded as the dominant factor. That is the trouble.
Senator COUZENS. That part, I think, is unfortunate.
Colonel CHANTLAND. Yes; when I speak about things being well done and ranging from that on to where they were not done in that way, I mean there were some appraisals, as brought out on crossexamination, that we would term “ horseback appraisals." For instance, a man goes out and spends a couple of days looking over a big system. That is not an appraisal. An appraisal by doing that is physically impossible. A little later I want to call the attention of the members of the committee to other kinds of appraisals, but I now desire to get back to the proposition I was discussing.
Senator COUZENS. All right.
Colonel CHANTLAND. Now, I was speaking of chapter 12 of the Commission's final report dealing with the State situations.
Senator WHITE. Mr. Chairman, I have another appointment; I must go. I will try to get back before you adjourn. I dislike to miss what this witness is saying.
Colonel CHANTLAND. Thank you, Senator White.
The CHAIRMAN. I am very sorry that you cannot remain, Senator White. You may proceed, Mr. Chantland.
Colonel CHANTLAND. Chapter 13 in this final report is given to the present extent of Federal regulation of utility holding companies and the feasibility of enlargement. Chapter 14 states the conclusions and recommendations. I think, Senator Couzens, perhaps you were not in the hearing room when I stated that attached to this report are seven legal studies of points raised repeatedly in the House hearings. I think these will more or less answer some of those questions. I am sorry it is only in page proof, but we cannot help that. It has not as yet been permanently bound at the Government Printing Office.
Now, besides parts 69-A, 72-A, and 73-A, there has also been handed to you copies of part 71-A. That is the report on the association's propaganda that I am speaking of at this time.
By “ association propaganda” I mean this: By a gentlemen's agreement made with the utilities—and we so treated them, I hope and believe, even if we did have to disclose the facts-it was agreed that we should first examine the propaganda of the associations, and of the committees that they set up, leaving the propaganda conducted by the companies themselves until the time when the financial reports of the companies should be brought in, thus avoiding the necessity of duplicate appearances of representatives of the companies. It seemed to us to be fair to do it that way, and we did. Therefore, the report on the activities of the different companies and groups is not yet printed and will not be printed until we print the final report at the close of the present year.
Besides that I have also had the clerk hand to each member of the committee a copy of our part 68, in which is an over-all survey of the natural gas and the natural gas pipe-line situation of the United States. It gives a pretty good view of that part of it.
The CHAIRMAN. What was the nature of the propaganda that they put out?
Colonel CHANTLAND. I will get back to that.
Colonel CHANTLAND. Will you permit me, before I go ahead with that, to give you these brief items of expenditures. Senator Bone, I am trying to give the character of the evidence which is before the Federal Trade Commission and which led up to this proposed legislation. I say that inasmuch as you have just come into the hearing room,
Senator BONE. All right.
Colonel CHANTLAND. I want to call attention to the budget of the N. E. L. A. In this part 71-A that you have before you it shows that that budget exceeded a million dollars a year. It is true that a part of this was for technical work. But it is also true that so far as the time and energy at the headquarters and of the various geographical and State divisions were concerned, the principal activities of the staff were devoted to the public-relations end. The revived joint committee in the 7 months from June 1 to December 31, 1927, collected $400,000 for its use. And it was purely for propaganda, of course, or publicity or public relations, whatever you may desire to call it.
The State committees budgets averaged something over $20,000 per year each, some running considerably more, but the 28 committees