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INVENTIVE AND EXPERIMENTAL RESULTS MADE AVAILABLE TO LARGE GROUPS AXD

AREAS UNDER HOLDING-COMPANY MANAGEMENT

Another aspect of this problem is that invention in the utility and electrie industry has not yet ceased and, we expect, will not cease for a long time to come Every new appliance invented and perfected requires special effort to promote its use and gain acceptance for it. So long as that continues, the best skill and ability of holding companies will be required.

Concrete examples could be cited to show that holding company managements are testing out uses of appliances, new methods of promoting and merchandising them in limited areas, and then applying the results to the entire group of areas under a given management. If each individual operating company were to engage in the same experimenting and trying out, the total cost would be very much greater. Not only are large savings effected through holding company management, but many of the ideas which ultimately result from careful testing would never be initiated by the individual operating companies. Some of the larger individual operating companies here and there have achieved much progress in the use of their services, but these happen to be ones which, as a rule, have had an exceptional man at the head and they are the exception rather than the rule. By and large, I think it is fair to say that greater progress in the use of electricity has been made by those companies which are part of larger groups than by separate companies of comparable size, serving comparable areas.

HIGHLY COMPETITIVE CONDITIONS REQUIRE HOLDING COMPANY MANAGEMENT

Finally, the most urgent condition which requires the continued service of holding company management is the fact that beginning with a few years ago, and particularly from now on, increased use of electricity is on a highly competitive basis. As a matter of fact, with the exception of a minimum use of electricity for lighting, practically all uses beyond that have to be sold on a competitive basis

. Even the use of light in the home beyond a bare minimum is on a competitive basis. The average family still regards as actually unnecessary the amount of light which, according to best authorities, is necessary for health and comfort. It would rather spend its money for other purposes. The average family must still be educated on adequate lighting. Practically all other uses are on a competitive basis--refrigeration, cooking, hot water heating. They are not only in competition with other methods of serving the same needs, but they are in competition with all other purposes for which the family spends its money. It is obvious, therefore, that if the use of electricity and appliances is to continue to increase, greater managerial skill and ability will be required even than in the past because of the greater competition. Commercial and industrial uses are obviously on a highly competitive basis and increasingly so because of the perfection of ways of generating power by separate concerns for their own use.

BIGNESS OF LIFE EVEN FOR THE HUMBLEST

The development of bigness in the utility industry has come about primarily through economic need, through the greater accomplishment of large units, in short, through the force of competition and the pressure for greater efficiency: The history of practically every industry shows a development from many small units in its early history to a lesser number of large units. For example, the automobile industry, which is one of the outstanding industries in achieving perfection of its product and wide use, had 315 establishments in 1919 engaged in the manufacture of passenger cars and trucks. This number declined year by year until according to the 1933 Census of Manufactures, there were only 122 establishments. And today the three largest companies in that industry produce 90 percent of the total units manufactured. The larger units have been able to apply more thorough-going research and to develop greater perfection in manufacture and more skilled merchandising methods and, I have no doubt, gire greater value for the dollar than was possible before.

To mention one other illustration: In the canning industry there were in 1914, 4,220 establishmenis whereas in 1933, there were only about half that number, or 2,336, and yet the value of canned goods in 1933 was twice as great as in 1914. The history of almost every other industry shows a similar development. Bigness has developed by sheer force of economic compulsion in being able to service the needs of the people better, more cheaply and more efficiently.

Bigness of business and the opportunity for individual enterprise is what has made this country great in so many ways, not the least of which is bigness of

life, even for the humblest worker, with a standard of living higher than in any other country,

The United States alone uses in round numbers as much electricity as all the European countries combined; per capita it uses three times as much as European countries—936 kilowatt-hours per capita in the United States as against 298 kilowatt-hours in Europe.

CONCLUSION In conclusion, may I appeal to your native sense of fairness to consider this question on its merits. Let us not destroy an instrument of progress born of economic necessity in the struggle to render greater service. Let us not regulate to dwarfdom the forces making for progress. Over-regulation will surely subdue the enterprise necessary for progress. History shows that every effort to overregulate human endeavor has in the long run either failed of its purpose or curbed progress. As long ago as 301 A. D., Diocletian, Emperor of Rome, after several crop failures, fixed prices of all kinds of commodities and wages and fees for all kinds of work and service. The plan failed and fell into abeyance.

History shows that every effort to interfere unduly with the normal operations of human nature results ultimately in failure. The statement is attributed to Thomas Jefferson that the best governed people are the least governed. I urge you to disprove the conclusion of the noted philosopher, Hegel, that, "peoples and governments never have learned anything from history, nor acted on principles deduced from it." All human experience teaches that interference with normal economic processes by legislation, such as the bill now before you, will fail of its purpose.

The bill is destructive, despite honest belief to the contrary that may be held by its sponsors. It would surely result in sweeping injustice to millions of citizens. The evils that it seeks to correct, either exist no longer, or are thoroughly covered by legislation already enacted (such as the Securities Exchange Act), or have been grotesquely exaggerated as to their effect on users of electric service and investors in utility securities. I appeal to your native sense of fairness to consider on its merits the full meaning of the proposed legislation in all its bearings. Let us not destroy; let us build.

STATEMENT BY F. S. BURROUGHS, VICE PRESIDENT ASSOCIATED Gas & ELECTRIC

Co.

GENERAL

It is a matter of very great regret to the management of the Associated Gas & Electric Co. that this committee was unable to allot time for the appearance before it of representatives of the company wherein to present their views with respect to the proposed public-utility holding company bill, and more particularly, to refute some of the inaccurate, incomplete, and misleading statements which have been made to the committee with regard to the Associated Gas & Electric Co. and subsidiaries by certain proponents of the bill who were given an opportunity to appear in person before the committee. Although the committee of public-utility executives was allotted time for appearance by representatives of the public-utility industry in opposition to the bill, that committee was unwilling to give any part of its time to Associated Gas & Electric Co. representatives. It was on account of this situation that the following telegram was sent to Senator Wheeler:

APRIL 19, 1935. Hon. BURTON K. WHEELER, Chairman Interstate Commerce Committee,

Washington, D. C. We request opportunity to appear before committee at hearing on publicutility act of 1935. We are advised by committee of public-utility executives that they are unable to allot any of their time to us and we must therefore make request for time direct to you. Inasmuch as we are the largest independent gas and electric company in the United States we should have 3 hours to present our views and in view of continuous specific reference to Associated by witnesses to date feel it is essential that committee hear both sides of story. Please advise date and time for appearance of our witnesses.

AssocIATED Gas & ELECTRIC Co.,
F. S. BURROUGHS, Vice President.

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Associated free of banker control.--As mentioned in the above telegram, Assam ciated Gas & Electric Co. is the largest independent owner of gas and electric utility properties in the United States. By "independent” I mean that it is not controlled or dominated by any bank, banker, or group of banking interests and is absolutely free of what is customarily referred to as “Wall Street” influence. Resistance by the Associated management to repeated attempts to exert such influence explains the existence of what Mr. Corcoran referred to in his testimony before this committee as “the somewhat snobbish attitude on the part of the rest of the industry” toward Associated.

Associated's major group highly attractive to others. The greater part of the Associated's operating subsidiaries are located in the northeastern part of the United States, more than 75 percent of the consolidated earnings of Associated Gas & Electric Co. and subsidiaries being represented by the earnings of subsidiary companies operating in the States of New York, New Jersey, and Pennsylvania. The ownership of this highly concentrated group of important prop erties by an independent company has been the subject of great annoyance to interests undertaking to create a consolidated “Boston to Baltimore" superpower system under the domination of certain “Wall Street" groups. Dr. Splawo apparently favors such “regional integration” but when it is recognized (1) that

Associated” has been responsible for the extension of high quality, thoroughly reliable service at reasonable rates into sparsely settled areas reaching practically up to the city limits of Buffalo and New York City which were not sufficiently attractive fields for operation at the time Associated entered these areas to induce the large adjacent metropolitan systems to extend service thereto, and, (2) that Associated System rates, as for example, in Cambridge, Mass.; Borough of Riebmond, New York City (Staten Island) and Patchogue, L. I., are more favorable to consumers than those of the larger adjacent systems, it is hard to believe that the Associated customers in those areas will agree that the holding company in the case of Associated has failed to perform a useful function or that the elimination of public-utility holding companies would be in the interest of users of the service rendered by the subsidiaries of such companies.

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IRREPARABLE LOSS TO SECURITY HOLDERS

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There are 254,965 registered holders of Associated securities and they are located in every State in the United States and 34 foreign countries. Holders of registered and coupon securities combined, excluding duplication, exceed 300,000. Of the total number of registered security holders 141,750 are men and 108,817

In addition, a total of 8,659 institutions and fiduciaries which hold Associated System securities may be classified as follows: Insurance companies.Banks and trust companies.

874 Investment trusts.-

302 Investment funds.

692 Schools and colleges -Churches...

111 Fraternal and benevolent organizations

489 Fiduciaries (including 5,049 individuals) Total...--

8, 659 I wish to say to this committee, without qualification, that the passage of this bill and the enforced disposal of the assets of Associated Gas & Electric Co. wil seriously and irreparably damage these security holders.

The securities of its subsidiaries, which comprise the assets of Associated Gas & Electric Co., have been carefully accumulated over a long period of years and to force their sale during a period of depressed markets with the added burden of elimination of all prospective buyers, except the Government, municipalities

, and a few individually wealthy bargain hunters, would inevitably confiscate most of the normal value of these assets and preclude the owners of Associated securities from enjoying any of the benefits which will otherwise accrue to them upon 3 resumption of normal business conditions and relief from the present crushing burdens of taxation.

5,959

CERTAIN ERRONEOUS STATEMENTS BY PROPONENTS OF BILL On April 3, I appeared before the Committee on Interstate and Foreign Commerce of the House of Representatives, and presented to that committee certain views on this proposed legislation. I also undertook to answer in considerable

detail some of the inaccurate, incomplete, and misleading statements which had been made to the committee by various proponents of the bill. With a view to avoiding unnecessary repetition, I am submitting herewith for purposes of the record, & printed copy of the statement which I made before the Committee on Interstate and Foreign Commerce of the House of Representatives.

Proponents lack essential knowledge.--After a careful study of the testimony of the various proponents of the bill as given before this committee, together with their testimony on the same subject before the House committee, I have arrived at one definite conclusion, which, I am sure, must have similarly impressed itself upon the members of this committee, and that is, that not a single one of the proponents of the legislation, including one of the coauthors of the pending bill, has any complete, accurate, or comprehensive information about the publicutility situation, either from the standpoint of operating companies, or of holding companies, nor a definite idea as to what phases of the situation are not already adequately covered by existing regulation, or what the effects will be on investors in public-utility securities or upon users of public-utility service through the enactment into law of the proposed bill. An indication of the complete lack of knowledge of certain fundamental and necessary facts with regard to matters of capitalization and distribution of public-utility securities was, for example, the statement of Mr. Corcoran before this committee, in reply to a question by Senator Hastings, that operating companies are practically always capitalized with common stock, prefered stock, debentures, bonds, or other securities, without the right to vote and that only the common stock is usually owned by the holding company. This statement was made in spite of the fact that in the course of my testimony before the House Committee on April 3, 1 pointed to the fact that out of 104 operating subsidiaries of Associated Gas & Electric System, 74 have no securities of any kind outstanding with the public, their entire capitalization being owned within the Associated Gas & Electric System. Even if my testimony had been called to Mr. Corcoran's attention, it might have been assumed that he would be familiar with the fact that neither the Cambridge Electric Light Co. nor the Cambridge Gas Light Co., which served the city in which Mr. Corcoran spent some years attending college, have any securities of any kind outstanding with the public, the capitalization of each of these companies consisting solely of common stock, all of which is owned in both cases by the New England Gas & Electric Association.

Obscure writer's article used to mislead committee.-- An indication of Mr. Corcoran's willingness that this committee should be mislead through his submission to it of data without a full and complete explanation, which had it been furnished would have given an entirely different complexion to such data, is afforded by his introduction into the record of an article dealing with Associated Gas & Electric System which appeared in the issue of July 1933 of the Atlantic Monthly. At his request this article was introduced in full into the printed record of his testimony and occupied 31 of the total 145 pages of such testimony. He did not bother, however, to explain to this committee that the publishing of this article is now the subject of a libel suit which is pending in the Massachusetts courts and which was brought by Associated Gas & Electric Co. against the publishers of the magazine. He furthermore did not explain, that the writer of the article referred to, viz, Mr. N. R. Danielian, is not a recognized authority on public-utility questions but is merely a tutor at Harvard University, and that the subject-matter for his article was gathered in part from Government records on the occasion of his employment for several short periods on the staff of Dr. Splawn. He quoted from Federal Trade Commission records to give an appearance of authenticity to some of his statements, but by making only partial quotations he made it appear that official records supported certain of his contentions, whereas a complete and accurate quotation from the records would have shown the facts to be entirely different. Dr. Splawn at the time of the publication of this article expressed to representatives of the Associated Gas & Electric Co. his great regret that it had been written, especially by one who had abused his position with Dr. Splawn's staff. The declaration of the plaintiff, Associated Gas & Electric Co.-in the libel action above referred to, states, that "the defendant corporation falsely, maliciously, willfully, and wrongfully published, issued and circulated the false wicked, scandalous, and defamatory libel entitled 'Gas-A Study in ExpansionThe case of Associated Gas & Electric'.” This declaration is a matter of public record and was available to Mr. Corcoran had he been desirous of making a complet statement of facts to this committee, but it apparently suited his purposes better to simply introduce the article into the record with the statement that it had appeared in the Atlantic Monthly, and with the comment that the Atlantic Monthly “is certainly not a radical journal.”

Magazine article unusual basis for legislation. It seems worthy of comment, that even were the article referred to not of such a character that its publication has resulted in a libel action, a magazine article by a practically unknown author is a rather unusual basis to be adopted for his guidance by the draftsman of 80 important a piece of legislation as the bill now before you.

Proponent's failure to produce promised example of dissolution is significant.-It is to be regretted that Dr. Splawn has not as yet presented, either to this com

RELATION OF MARKET VALUE OF PUBLIC UTILITY STOCKS

to
MARKET VALUE OF INDUSTRIAL STOCKS
Based on Dow Jones Averages by Months

JANUARY 1929 - APRIL 1935

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mittee or to the House committee, an example of how any one of the major holding-company systems could be dissolved without loss to security holders, although he was asked for such a statement by a member of the House committee in the course of his testimony before that committee on February 25. At that time he stated that he would prepare and submit an example to illustrate bow this might be accomplished. Apparently, however, such a statement may no longer be expected from Dr. Splawn, inasmuch as he indicated before the House committee on April 15, when pressed for the statement by several members of

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