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CHART 6. INDEX OF STOCK PRICES: UTILITIES, RAILROADS, INDUSTRIALS

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THE CITY OF ST. LOUIS,
April 29, 1935.

Senator BURTON K. WHEELER,
Senate Interstate Commerce Committee,

Washington, D. C.

DEAR SIR: In the interest of the public, I am taking the liberty of sending you, for the consideration of your committee, five copies of a statement setting out my position in support of H. R. 5423, based upon the experience of the city of St. Louis with holding companies and interstate natural gas pipe lines.

Yours respectfully,

CHAS. M. HAY, City Counselor.

THE EXPERIENCE OF ST. LOUIS WITH HOLDING COMPANIES AND NATURAL GAS PIPE LINES

House of Representatives bill 5423 is of interest and concern to St. Louis both from the standpoint of holding companies and interstate natural gas pipe lines. The evils which this bill is designed to eliminate are matters of common knowledge, and have been brought home to the people of St. Louis in a very real and memorable way through the operation of our local utilities.

In the hope that our experience here may throw some light upon the question before you, I give you, in brief, the record:

The utilities operating in St. Louis, all controlled by foreign holding companies, are:

The Laclede Gas Light Co., Laclede Power & Light Co., Union Electric Light & Power Co., Southwestern Bell Telephone Co., and St. Louis Public Service Co. The Laclede Gas Light Co. and the Laclede Power & Light Co. are controlled by the Utilities Power & Light Corporation, a Harley Clarke enterprise, with offices in Chicago.

The Union Electric Light & Power Co. belongs to the North American Co. The Southwestern Bell Telephone Co. is a part of the American Telephone & Telegraph Co.

The St. Louis Public Service Co., our street railway and bus operator, is controlled by the City Utilities Co.

LACLEDE GAS LIGHT CO.

This company is our most "horrible example" of holding company control. This is an old company, and until 1924 was under local ownership and management. The management was competent and considerate of the public interest, the rates were reasonably fair, and the service reasonably satisfactory.

In 1924, Mr. Charles A. Munroe, of Chicago, purchased a controlling interest in Laclede's common stock, and for 3 years thereafter dominated the situation here.

The history of the Laclede Gas Light Co. in St. Louis might well be divided into two eras, B. M. (Before Munroe) and A. M. (After Munroe). Before Munroe, as suggested, its history is the story of local ownership and management, good public relations, fair valuation, reasonable rates and reasonably satisfactory service. After Munroe, it is the story of foreign holding company control, inflated valuation, increasingly high rates, less satisfactory service and bad public relations.

Munroe's career in St. Louis may be summed up in a sentence: He came to the city in 1924, operated and manipulated for 3 years, organized a holding company and a flock of subsidiary companies, and left the city in 1927 with a profit of $14,000,000. During these 3 years the valuation of Laclede's property was boosted by the Public Service Commission, at the instance and insistence of Munroe, from $27,000,000 to $45,600,000.

Munroe not only placed the controlling interest of the Laclede Gas Light Co.'s common stock in the holding company, the Laclede Gas & Electric Co., but in 1926 he inaugurated "management charges" by the holding company for alleged management services rendered the Laclede Gas Light Co. Munroe was the dominant figure in both companies. He was president of the holding company and chairman of the board of directors of the operating company. As chairman of the board of the Laclede Gas Light Co., the operating company, he drew a salary of about $40,000, but he had the Laclede Gas Light Co., pay the holding company more than $98,000 in 1926 to manage the operating company. In other words, Laclede Gas Light Munroe paid Laclede Gas & Electric Munroe to advise Laclede Gas Light Munroe how to run the Laclede Gas Light Co.

Munroe sold out to Harley Clarke, of the Utilities Power & Light Corporation of Chicago, who then became the dominant figure of the Laclede Gas Light Co. Clarke controlled both companies. The same management graft continued. Laclede Clarke paid Utilities Clarke $206,000 in 1927; the same amount in 1928; $217,000 in 1929; $256,000 in 1930; $204,000 in 1931, and $189,000 in 1932, to tell Laclede Clarke how to run the Laclede Gas Light Co.

As I have stated, Munroe organized a flock of subsidiary companies, and Clarke has continued and added to them.

The influence of holding-company management and manipulation upon the operations of an operating company is strikingly evidenced by Munroe's arrangement for the purchase of gas for the use of the operating company. He discovered that he could purchase oil still gas in Illinois. Instead of buying this for Laclede direct from the producing company in Illinois, he organized the Illinois-Missouri Pipe Line Co., and through this company purchased this oil still gas, and then sold it to the Laclede. Munroe testified before the Federal Trade Commission that through this arrangement he made a profit of approximately $1,000 per day. In other words, Laclede Munroe, on a salary from Laclede of $40,000 per year, paid Pipe Line Munroe a profit of $1,000 per day for gas which Laclede Munroe could have bought direct from Wood River, Ill., at the same price as paid by Pipe Line Munroe.

Since the injection of the Utility Power & Light holding-company management, the Laclede Gas Light Co. has bought its coal from the Utilities Elkhorn Coal Co. and United Collieries, Inc., and has sold its coke to and through the United Collieries, Inc., both subsidiaries of the holding company.

Transactions between the Laclede and these affiliate companies have run into many millions of dollars. Between 1927 and 1934, inclusive, the Laclede has paid these affiliates from which it has bought coal, the sum of $15,906,354; between 1930 and 1934, inclusive, it has sold coke through its affiliate in the sum of $5,254,000.

No one has ever contended that these transactions were without profit to the holding company.

In 1927 Utilities Power & Light, seeing the chance to sell Laclede coke oven gas from the St. Louis Gas & Coke Corporation at Granite City, Ill., acquired that company. Prior to this time this Coke Co. was primarily engaged in the manufacture of coke, and the resulting gas, for the most part, was permitted to escape into the air. Accordingly, Utilities Co. caused a contract to be entered into between Laclede and Coke Co. for the purchase of this waste gas, at a cost in excess of Laclede's own cost of manufacture.

In addition to these devices, it is now so arranged that practically all of Laclede's construction and a great part of its maintenence is done by the Management & Engineering Corporation, another affiliate. This noncompetitive work runs into hundreds of thousands of dollars.

Perhaps the most flagrant abuse of holding-company powers is shown in connection with the introduction of natural gas in St. Louis. After the Mississippi River Fuel Corporation's pipe line was extended in 1929, and when it became apparent that there was a public demand for natural gas in St. Louis, then, instead of the Laclede Gas Light Co. acquiring natural gas direct from the Mississippi River Fuel Corporation pipe line, the holding company caused to be organized another affiliate, the Missouri Industrial Gas Co., which company entered into a contract with the pipe-line company for the purchase of natural gas to be distributed to industries in St. Louis in competition with Laclede.

It has been disclosed that Laclede actually advanced the construction money to its holding company, the Utilities Power & Light Corporation, to enable the latter to create the Missouri Co. for the purpose both of competing with Laclede and selling it gas at a profit.

In 1931, after much public insistence that the Laclede distribute natural gas generally, the contract between the Missouri Industrial Gas Co. and the pipe-line company was modified so that the Missouri Co. was permitted to buy natural gas for resale to Laclede, to be used for the sole purpose of mixing with Laclede's artificial gas. In this transaction, Laclede was required, among other things, to pay to this dummy affiliate company a return and depreciation allowance on the greatly overvalued Missouri Co.'s property. Strange to say, although the Laclede was not privy to the Missouri-Mississippi contract, it was insisted that this supplemental contract of 1931 be, and it was, guaranteed in writing by Laclede. Then, to complete the contract picture, and in order for Laclede to obtain natural gas and make good its guarantee of the Missouri-Mississippi

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