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charged for electric power transmitted interstate, where the commissions in the States concerned do not have the power to regulate such rates. Where there are authorized commissions in the States concerned, I believe the Federal Power Commission should have authority only to participate in such regulation by designating one of its members to sit on a special commission composed of three members, the other two to be designated by the States concerned.

My reasons for this belief are briefly as follows: The amount of power transmitted interstate and not already subject to State control is negligible, a very small part of the power consumed in the United States. Electric utilities are essentially local concerns and are not in any important degree agencies of interstate commerce. No Federal agency should be set up and vested with any such broad regulatory powers as are now provided in title II because it would inevitably oust the States from control of matters essentially their own, it would impose a useless burden of expense upon the taxpayers and upon the power consumers, and it would unnecessarily complicate utility regulation through duplicating, overlapping, and conflicting controls. Finally, the regulatory provisions of title II are so extreme and burdensome in character that they would prevent the utilities from exercising the necessary managerial control of their own properties, and would inevitably lead to Government ownership and operation.

The companies in the American Water Works & Electric System are not concerned with title III of the bill and I therefore make no comment on it.

In order to show some of the different types of companies which afford a background for the suggestions I have made, and to illustrate the special problems they present, I am adding to this letter a brief statement and a chart, describing the American Water Works & Electric Co. System. Very respectfully submitted.

H. HOBART PORTER, President. MARCH 30, 1935.

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AMERICAN WATER WORKS & ELECTRIC Co., Inc. American Water Works & Electric Co. is a holding company. It controls directly through ownership of approximately 100 percent of their voting stocks over 40 water works companies serving various municipalities in 16 States, including Birmingham, Chattanooga, East St. Louis, South Pittsburgh, Little Rock, St. Joseph, and Clinton, and indirectly three electric light and power companies, the West Penn Power Co., Mononga hela West Penn Public Service Co., and the Potomac Edison Co., through ownership of approximately 95 percent of the voting stock of the West Penn Electric Co.

The American Water Works & Electric Co. was organized in 1914 to acquire the public-utility properties, water-supply and electric, owned by the predecessor company. Most of the waterworks companies had been in the system for more than 25 years, and the electric properties, which were located in the distriet immediately surrounding Pittsburgh, from the time of their organization.

THE WEST PENN ELECTRIC CO.

The Federal requirements during the war for increased power supply to the heavy manufacturing industries surrounding Pittsburgh resulted in a vast expansion of the properties of these electric companies and led to the conclusion that the interests of the public would ultimately require the creation of an extended but interconnected system irrespective of State lines. This policy resulted in the acquisition of the electric properties in the portions of western Pennsylvania, western Maryland, northern West Virginia, and to some extent in Ohio and Virginia. The appended map shows the extent of this interconnected electric system.

To accomplish this purpose and secure the cheapest financing and the best operating results, the then-existing intermediate holding company, which had been created prior to 1914, was transformed into the West Penn Electric Co., which today owns or controls substantially all of the common stock of the various electric properties. It has outstanding in the hands of the public $5,000,000 of debentures and approximately $35,000,000 of preferred stock, the proceeds of the sale of which have been used for the benefit of the subsidiary properties.

The outstanding functions of this utility holding-company system, like those of all properly organized and conducted holding-company systems, are two-fold: The development of economical and efficient group management, and the provision of an instrumentality through which the rapid increases in necessary capital could be provided for the development, extension, and improvement of the service to the public.

The paramount duty of a public-utility company is to furnish the most reliable service to the greatest possible number of consumers at the lowest cost. To accomplish this there must be far-sighted planning as, by the very nature of the business, the facilities for growth must be arranged for long in advance of the demand. There must be a sound corporate structure which will enable those charged with the financial direction of the company to obtain unlimited supplies of money at all times at the lowest interest rates, and the operations of the company must be carried on with the greatest economy. So far as the electric utilities in our system are concerned, all of these necessary and important functions have been applied through the intermediate agency of the West Penn Electric Co. Its only function at the present time is the holding of the stocks of the operating properties. It receives such earnings from them in the form of dividends and interest as they are permitted to earn by the respective public service commissions in the States served, and after paying interest and dividends on the abovementioned debentures and preferred stocks, any balance may be declared as dividends to the American Water Works & Electric Co.

I cannot close this brief description of the American Water Works & Electric Co. System without pointing out the totally destructive character of the liquidation threatened by the pending bill, as respects my company and all similar holding companies, and the resultant utter wiping out of investments in the equity securities of these companies, which have real present value. In this respect, American Water Works & Electric Co. is in no different situation from any other holding company which has bonds, preferred and common stock of its own and intermediate holding companies in the hands of the public Liquidation will force payment of the bonded debt, and forced liquidation, as is always inevitably the case, will mean enormous losses to investors in junior securities. It is no answer to this to say that the bill provides that under certain circumstances certificates may be issued by some Federal commission permitting the holding company continued temporary existence. No holding company could continue to function under such a threat of dissolution, and the value of the equity securities in the hands of the investors would enormously shrink and probably entirely disappear.

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LEGEND
Existing Proposed Gas & Oil Generating Stations........

Sub-Stations...
Electric Railway Lines...

Interconnections with Foreign Lines..

Under Contract with Other Companies... COPYRIGHT, 1934, BY POOR'S PU

130254-35.

HOUSE OF REPRESENTATIVES,

Washington, D, C., April 29, 1985. Hon. BURTON K. WHEELER,

United States Senate, Washington, D. C. MY DEAR SENATOR WHEELER: On request of Mr. R. C. Behrens, vice president of the St. Louis Union Trust Co., I am enclosing a statement in reference to the proposed legislation affecting holding companies. Sincerely yours,

JOHN J. COCHRAN.

STATEMENT OF THE St. Louis UNION TRUST Co., OF St. Louis, Mo.,

BEFORE THE HOUSE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, IN REGARD TO Bill H. R. 5423, ENTITLED THE “PUBLIC UTILITY Act of 1935"

The St. Louis Union Trust Co. acts in a fiduciary capacity for a great many trust estates which contain securities that will be affected by the enactment of bill H. R. 5423. The securities supervised by us which will be affected by this pill have a value in excess of $40,000,000. Only a few of the securities in these trust estates were purchased by us, while a great majority of these issues were bought in good faith by individuals and entrusted to us for supervision and safekeeping for the benefit of their dependents. A great many beneficiaries of these estates have authorized us to act for them in regard to this bill.

The St. Louis Union Trust Co. has a capital and surplus of over $12,000,000. [t is the oldest trust company in Missouri and transacts the largest volume of trust business in the State. There is no person connected with this institution who can be classed as a director, officer, or representative of any utility company which comes under the jurisdiction of this bill. We are definitely in favor of all air and equitable regulation of utility holding companies which is designed to protect the consumer, the investor, the operating company and the holding company from certain malpractices and abuses which may have occurred in the past. However, we are strongly opposed to any legislation, such as proposed, that will be harmful to the investor and work hardships on the operating and holding companies

We are chiefly concerned for our purposes with title 1 of the Public Utility Act of 1935. Titles 2 and 3 of the act have to do with the operation of various utility systems and have been discussed before your committee by the officers of utility companies who are more familiar with utility business; although it should be porne in mind that many sections of titles 2 and 3 will adversely affect the nterests of investors.

We will consider under title 1 only those sections of major importance which will have, if enacted, an injurious effect upon investors.

Section 7B provides that it shall be unlawful after January 1, 1937, for any egistered holding company, or any subsidiary thereof which is an electric utility company to own or have an interest in any company which is engaged in the production or transportation of natural gas. (The Securities Exchange Commission may extend the dissolution date of Jan. 1, 1939, under certain circumstances.)

The effect of section 7B would be to enforce companies to sacrifice a part of their nterests or business on or before January 1, 1937, at probably extremely low prices ought about by a statutory dissolution. The sale of these assets at low prices would leave little if anything remaining for the equity holders.

Section 7D provides that it shall be unlawful after January 1, 1937, for any egistered holding company to have any interest in an electric utility company and

gas utility company serving the same territory, unless a State commission shall expressly approve such action. (The Securities Exchange Commission may xtend the dissolution date to Jan. 1, 1939, under certain circumstances.)

The effect of section 7D would be to give State commissions the power to decide vhether or not a company may own electric and gas properties operating in the -ame area. In the event that the State commission does not expressly approve he ownership of the two properties, a forced liquidation of a part of the business vould be necessary and would result in the company and its stockholders obtaining nly a fraction of the fair value of the properties so liquidated.

Section 10B, part 1, 2, and 3, provide that after January 1, 1938, the Securities Exchange Commission must compel every registered holding company and every ubsidiary thereof to dispose of all securities or capital assets of such companies whenever it appears that the continued ownership is not necessary or appropriate to the operations of a geographically and economically integrated system, or that the corporate structure or continued existence of any such company unduly

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