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Associated free of banker control.-As mentioned in the above telegram, Associated 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 properties 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. Splawn 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 Richmond, 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.
IRREPARABLE LOSS TO SECURITY HOLDERS
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.
140 Banks and trust companies.
874 Investment trusts--
302 Investment funds_
692 Schools and colleges. Churches Fraternal and benevolent organizations.. Fiduciaries (including 5,049 individuals).
Total 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 : resumption of normal business conditions and relief from the present crushing burdens of taxation.
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, a 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, I pointed to the fact that out of 10, 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 60 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
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 how 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 the committee, that the most he had done was to send some "stuff" on it to Judge Healy, who he "presumed to be working out the same thing." No such example has, however, been furnished by Dr. Splawn, Judge Healy, or anyone else. Dr. Splawn stated that he would require the help of practical utility men, and these are the same men who advise that dissolution without loss is impossible. His opinion regarding dissolution without loss is therefore based on knowledge which he does not possess. The failure of the prominent proponents of the bill to fulfill their undertaking in this respect seems most significant.
Federal Power Commission chart misleading.-In the course of his testimony before this committee, Mr. DeVane, solicitor for the Federal Power Commission, stated that substantially all of the decline in the market value of public-utility securities took place prior to 1933 and cannot therefore properly be attributed to the attacks on the industry which have characterized the present administration. This subject was further amplified by the publicity department of the Federal Power Commission in its news release of April 9.
These statements are entirely misleading and are designed to convey the impression that the market value of utility securities has declined because of the disclosure of unsound practices in which utility managements are said to have indulged. For one thing, a chart based on security quotations in terms of the American dollar without recognition of the change in gold content, is obviously misleading and the statement of the Federal Power Commission in its news release of April 9, 1935, that there has been an increase in the money value of utility stocks since February 1933, of 23 percent without explaining that on a uniform base there has been a decrease of over 25 percent in that period, is equivalent to saying that the area of the United States would be doubled if Congress should fix the length of a mile at 2,640 feet. Everyone recognizes that all classes of securities, as well as commodities, have been adversely affected during the past 5 years by the world-wide business depression. Any statement or chart, therefore, based on market quotations of securities in terms of money alone, necessarily emphasizes the effect of the change in the standard of value itself to such an extent that factors such as the attitude of Government toward a particular industry or actions by the management of such an industry are almost totally obscured. A true reflection of the effect of these factors can only be shown by comparing the trend in the market value of public utility securities with the trend in the market value of other classes of securities. I have had a chart prepared, which I submit herewith, showing the market value for utility securities as compared with the market value for industrial securities during the period January 1, 1929, to date. This chart is based on the published Dow-Jones Averages. It will be noted, by reference to this chart, that the trend in the market value of utility securities with relation to industrial securities was steadily upward throughout the period from January 1, 1929, to January 1, 1933, and that on January 1, 1933, utility securities had reached a market level 50 percent higher with respect to industrial securities than was the case on January 1, 1929. Beginning with January 1, 1933, the trend reversed and the market value of utility securities has declined consistently with relation to the market value of industrial securities since that time, and at present is approximately 50 percent lower, with respect to industrial securities, than on January 1, 1929, prior to the beginning of the depression, and only one-third as high as on January 1, 1933, prior to the beginning of the attacks on the industry which have prevailed throughout the present administration.
Proponents dodge real issues. There are only two angles from which the public is affected by the existence or nonexistence of public-utility holding companies. These are from the standpoint of the public, as (a) users of public-utility service ' and (b) investors in public-utility securities.
No proponent of the pending legislation has made a straightforward approach to the question and explained how the public is adversely affected in either of these capacities by the existence of public-utility holding companies. Instead they have uniformly started with the premise that utility holding companies are necessarily bad and serve no useful purpose and must, therefore, be eliminated. Some of these gentlemen have indicated that the mere matter of size of publicutility holding companies is one of the principal reasons why they should be eliminated. Mr. Corcoran stated to this committee that "you have got a situation of control through the holding company in the public-utility field which goes much deeper than that in any other field”, while Dr. Splawn referred to the public-utility holding company eystems as "empires”. Either Mr. Corcoran and Dr. Splawn are co npletely uninformed as to the situation in the steel,
electrical manufacturing, automobile, lumbering, copper mining, and various other fields of American industry, or they were deliberately trying to mislead this committee when they made such statements, as the facts do not support their statements.
No scientific determination in favor of local integration.--Mr. Corcoran also stated “we are faced with the fact that from the scientific point of view as Commissioner Splawn pointed out to you on Tuesday, there is no reason why it (the public-utility industry) should be organized on anything more than a local scale." I wish to object that there has been no such determination from a scientific point of view and to point out to you that neither Mr. Corcoran nor Commissioner Splawn is qualified to express opinions on the subject and characterize them as being in any degree an expression of a “scientific point of view." I also wish to state that when Mr. Corcoran undertook to tell this committee that recent improvements in diesel generating equipment have materially changed the situstion with regard to how far it is economically feasible to transmit power and that the “possibility of the remarkable development of the diesel engine, which, particularly in rural communities, or in communities where the load had not got to be too high" (whatever that means) "might completely replace the high line altogether” he was definitely wasting the time of the committee to express an opinion on a technical matter of which the best that can be said is that his opinion was unbiased by any actual knowledge of the subject.
Proponents use unsound arguments.—Dr. Splawn on the occasion of his first appearance before the House committee expressed the opinion that holdingcompany ownership should be limited to a single integrated system. He later amended nis views on the subject to cover possibly two such systems. He gave no reasons why the inclusion of more would adversely affect the public either 93 customers or investors but simply stated it as though it were as axiomatic as a natural law which was not a subject for argument or one requiring explanation.
As a matter of fact, there is no inherent disadvantage to the public from such s situation and there are many advantages, as pointed out in my statement of April 3, 1935, to the House committee. The unsound feature of the arguments of the proponents of this legislation is that they start with the premise that public utility holding companies are necessarily parasitic and unsound and instead of tabulating the advantages and disadvantages and then designing a program to retain the advantages and eliminate the disadvantages, if there are any which have not been eliminated by legislation and development of the past few years, they propose a program of destruction. The proponents of the legislation are bureaucrats and as such are more concerned with creating new commissions and extending the powers of existing commissions, with the concomitant of more jobs and more power, than they are in the welfare of the American public as investors in utility securities and users of utility service.
Colonel Chantland disregards facts.—Colonel Chantland stated to this committee that in some instances "there was a change in priorities and position of securities by the action of the directors without the approval of the securities owners whose position was moved down the scale of preference by the action. Outstanding as an example of the latter was the method in which the Associated Gas & Electric controlling management handled the General Gas & Electric Corporation investors and properties. When General Gas & Electric came into the Associated System it held a fine group of prosperous operating companies. That was what investors in General Gas & Electric had earning properties. By a most complicated series of seven different transactions and exchanges through controlled corporations inside of the system this result was arrived at: The principal earning properties in the group were transferred to other companies in the Associated System where some managing groups received most of the benefit of the earnings, and security owners of the General Gas & Electric Cor. poration found themselves owning and holding only nonvoting securities and debentures of the Associated Gas & Electric Co., a top holding company several times removed from any operating companies.
This statement is a typical illustration of the complete disregard of the facts that characterizes so much of the testimony of the proponents of this bill before this committee and the House committee that is considering similar legislation. The statement that any changes were made in the priorities of General Gas stockholders through "action by the board of directors without the approval of the securities owners whose position was moved down the scale of preference by the action” is definitely false and untrue. No change has been made in the priorities of any class of stocks of General Gas & Electric Corporation since the acquisition of control thereof by Associated Gas & Electric Co., either with, or for that matter, without the approval of securities owners.