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There is doubt whether it would be wise to consider tapping existing high lines, or whether small Diesel generating units should be used for specific areas.

The CHAIRMAN. In addition to the fact that electricity, or power, is a natural monopoly; and in addition to the fact that they have regulation of them which is supposed to justify them in expecting a fair return on their investment, there was also a thing that attracted investors in the shape of the growing demand for and the use of electricity for various purposes throughout the United States.

Mr. CORCORAN. That is true, Mr. Chairman. I was going to touch upon that in just a minute. The CHAIRMAN. All right.

Mr. CORCORAN. I have just been handed a note in which I have been reminded that Mr. Harriman, president of the United States Chamber of Comemrce, formerly an owner and operator of the New England Power Association, up in the New England States, testified before the House Committee on Interstate and Foreign Commerce that he did not think long-distance transmission was important practically or commercially today beyond a 200-mile limit.

We are going into this situation where the operating power industry is just at the threshold of another great development. I have here a chart, taken from the New York Times, showing what the electric-power output is now, as compared with 1929. Using their own index figure, power output registered 105 for the peak of the output in 1929, and we are back to 103 today. Electric power production is moving up faster than any other evidence of recovery.

And you will remember that in the last few days the Federal Power Commission has put out a survey of what it calls power deficiency in the United States. In view of present actual demand and what can be immediately forecast, the areas in red on this map show an actual deficit in generating capacity.

The National Power Policy Committee started with this essentially local industry. With all the difficulties of the holding company system at the present time, when their stocks are selling at an infinitesimal fraction of what they sold for in 1929 or when floated, and on the eve of a new development in the power industry, statesmanship demands that the Government should think out its policy now, before the situation runs away from us.

The conclusions of that committee-after considering all the testimony that had been presented to it by the investigations of these other Government agencies, and this general situation of the power industry, and the pick-up in electrical production I have been talking about—are embodied in this report attached to the President's message, beginning on page 4.

Let us just see what condition the National Power Policy Committee found in the power industry. In the light of these conditions you may recommend legislation if you think it desirable.

First of all, it found out that although this local monopoly is legalized by the local community and supposedly the most impressed with a public interest of any business we can call private business, concentration of control of the power industry had been effected to the point where, in 1932, when the Insull system was still intact, 13 companies controlled 75 percent of the total privately cwned operating utility business in the United States.

That figure is approximately the same today, although, of course, the Insull properties are now in the hands of receivers. Thirteen large companies control 75 percent of the power industry; and 5 companies, Insull, United Corporation, and Electric Bond & Share, just those 3 alone, control over 40 percent between themselves.

The CHAIRMAN. Insull, United, and what company? Mr. CORCORAN. Insull, United, and Electric Bond & Share. That is brought out on page 3, paragraph 2 of this report. There are also some figures on interstate control. The CHAIRMAN. All right.

Mr. CORCORAN. It was further found that that concentration was effected in a very unhealthy manner by pyramiding of control through this device of the holding company. In the utility field there are peculiarly favorable conditions for concentrating control and merging companies through the use of the holding company.

In the first place, with a securities market such as we normally have, if you put two or more companies together you haven't got to worry whether you are going to make money out of the business after it is merged, or are going to make more money than you could have made before. There is a securities market you can use. You do not have to make your profits out of operations. Demand for holding-company securities, as built up in the securities market over a long period of time, have made it possible for promoters to put companies together to make a killing out of the sale of securities to the public, and then the company itself can go to the devil so far as they are concerned. They have made their profit.

The New York Legislative Investigating Committee, as the chairman pointed out in a speech he made on the floor of the Senate some 2 weeks ago, uncovered a case in 1925 in New York, in connection with the Associated Gas system, where in 1 year by selling 100 million dollars' worth of securities to the public in connection with a series of mergers, the promoters got out with a profit of $34,000,000, leaving the public holding the bag.

It is obvious that when you can make profits like that out of mergers, in the securities market, you do not need to worry very much whether the merger will make money for you, as you have to worry if you are running, say, a shoe business and you want to take over somebody else's shoe business.

There is another reason why if you are a public-utility promoter you do not have to worry as ordinary industry has to worry at the time of a merger. If I have a shoe business and I want to take over another shoe business I have to remember that if I cannot operate the unified business as well as I operated my first separate business, and if I cannot take care of it, I may lose my business. But when I am dealing with a local monopoly I cannot lose that business until I have goaded the public, whom I am supposed to serve, into a condition where they will demand and vote for a municipal plant, or haul me up before a regulatory commission, or otherwise get me into what we may call political trouble. That is, this utility merger business is not subject to the normal checks of competition; first, because of the peculiar market built up for its securities; and, second, because the local monopoly nature of the business it is impossible for a competitor to take it away.

Commissioner Splawn told you on Tuesday about some of the results of this pyramiding, how these combinations can be effected through the holding-company device, by putting in very little money at the top and then selling a lot of nonvoting and otherwise noncontrolling securities to the public, and how through the voting device of the holding company, or controlling devices of one kind or another, $1 at the top can control many dollars at the bottom. Certainly you might say the average run of comparative investment is something like 1 to 10, and there are cases where it runs up to one at the top to over a thousand dollars at the bottom.

So that you have a situation where by reason of these mergers and these concentrations the operating companies are not controlled by direct ownership. A lot of other people's money is brought together through the securities market, and a few dollars at the top controls all the rest of the other people's money.

The CHAIRMAN. Will you go into a little detail on that question and tell us just how that is done!

Mr. CORCORAN. I am going to take a little time if I may about the importance of legal machinery in pyramiding of these huge structures. But, of course, as every lawyer on the committee knows, the holding company device works in this way: You have common stock, preferred stock, bonds, or debentures of a company

The CHAIRMAN (interposing). Of a holding company?

Mr. CORCORAN. Well, start with an operating company. You issue very little common stock and take it for yourself. Then you sell the public a great many bonds, preferred stocks, and debentures, which have no voting control. I am taking the simplest kind of control, but there are many subtle kinds of control, such as interlocking directors, interlocking bankers, interlocking lawyers, and so on. But voting power is the simplest form of control. Investment in the company represented by the bonds, preferred stock, debentures, or any other nonvoting common stock has no control over the affairs of the company. It is just money put in at the mercy of whoever holds the voting stock and is controlling the company.

You may pyramid that right up through a series of companies. The common stock or the controlling stock in the first company pyramided above the basic operating company in turn acquires a lot of other funds to manage through the issuance of nonvoting securities; then you pyramid another one on top of that first holding company, and perhaps still another one on top of that. In each succeeding case you can reduce the amount of money necessary to hold control. In the end, as Dr. Splawn pointed out to you in his description of Standard Gas & Electric Co., you can, through this holding device, control a tremendous amount of money at the bottom with very little money at the top. I think the figures of the pyramid in the case of Associated Gas, taking the figure of the sponsors themselves, show that an investment of about $300,000 controls pretty nearly a billion dollars at the bottom.

That concentration has been built up not with any conception that it was valuable for the operating industry or for the service to the public to be rendered by that industry. It has come about as an accident through a combination of circumstances, and

Senator HASTINGS (interposing). You are now talking about the holding-company situation, I believe.

because

Mr. CORCORAN. I am talking about public-utility holding companies. And when describing the machinery I was talking about holding companies in general.

Senator HASTINGS. This bill applies to utilities.
Mr. CORCORAN. Yes.

Senator HASTINGS. And it does not apply to all holding companies.

Mr. CORCORAN. The National Power Policy Committee was given no mandate except to work out a policy with respect to publicutility companies.

Senator HASTINGS. Do you know of any particular reason why it should be confined to utility companies?

Mr. CORCORAN. What was that question? I beg your pardon, but I was interrupted for a moment.

Senator HASTINGS. Do you know of any particular reason why the bill should be confined to utility companies !

Mr. CORCORAN. Let us put the question in another way, I do not like your word * confined.” Let us assume your question is: Do you know of any reason why it would be justifiable to apply this treatment to public-utility holding companies and not to other holding companies? Might I answer the question in that form?

Senator HASTINGS. Yes.

Mr. CORCORAN. Because there is a situation of control through the holding company in the public-utility field which goes much deeper than that in any other field, and because the public-utility field is one in which the public has a very particular and a very big interest. As I say, we are dealing with a local monopoly, a monopoly, which is protected by public policy against competition except when the municipal plant comes in. And we are dealing with an industry, which is peculiarly important to the public, has been important in the past, and as we go into an era of power development, will be even more important in the future; and we are going into an industry that has always been considered to be particularly subject to public regulation and public policy.

The CHAIRMAN. I was going to say, as a matter of fact, public utilities have always occupied a different field, and hadMr. CORCORAN (interposing). Yes; that is right, Mr. Chairman.

The CHAIRMAN (continuing). A different classification in the public mind and in the case of every government that has ever been organized.

Senator HASTINGS. Mr. Corcoran, wouldn't you be in favor of applying the same thing to all holding companies ? Mr. CORCORAN. That problem has never been put up to me. Senator HASTINGS. But I am putting the question to you now. Mr. CORCORAN. I have never thought that problem through.

Senator HASTINGS. Then you are not prepared to answer that question ?

Mr. CORCORAN. No; I am prepared to talk about utilities, but not about, say, the steel industry or any other industry.

Senator HASTINGs. But you do know about holding companies generally!

Mr. CORCORAN. With relation to the public-utility field; yes.

Senator HASTINGS. Well, is your testimony to be understood as confined to the utility field?

Mr. CORCORAN. Yes; to this utility bill.

Senator HASTINGS. So that you are not testifying about holding companies generally?

Mr. CORCORAN. No. I am just describing the machinery of concentration, and saying that in this particular field that machinery of concentration has brought about a result which, because of the peculiar relations of the power industry to the public, justifies treatment irrespective of whether that treatment or any similar treatment should be attempted for other holding company set-ups.

Senator HASTINGS. When I came into the hearing room you were talking about how easy it was for promotors to defraud the public by means of these holding companies, and you referred to a speech made by the chairman of the committee, and to some particular company. Was that a utility company?

Mr. CORCORAN. I was referring to a speech made by the chairman on the floor of the Senate about 2 weeks ago, a copy of which I understand has been put before each member of the committee this morning, and I referred to it because it represents a most carefully worked out defense of the bill, the best I have seen. That speech was on the subject of public-utility holding companies.

The CHAIRMAN. The trouble is that the Senator from Delaware (Senator Hastings) did not honor me by listening to that speech.

Senator HASTINGS. You referred to some particular company where the brokers, as I understood it, made $34,000,000.

Mr. CORCORAN. Not the brokers, but the promoters.
Senator HASTINGS. Where was that?

Mr. CORCORAN. In New York State. It was a combination of companies put together by the Phillips interests, a company rather accurately described, I think, in the New York Times of March 15.

Senator HASTINGS. It was a utility company?

Mr. CORCORAN. It was a utility company. It was connected with the Associated Gas & Electric System before it finished.

Senator WHITE. Might I ask you a question right there about the definition of electric-utility companies, and the definition of gas-utility companies, appearing on page 6 of the bill. Are you satisfied that these definitions are not broad enough to reach and include what ordinarily we would term an “industrial plant”? I am told that there are a great many industrial plants that generate their own power, and then they may have some surplus that they pass on to a neighboring company, a subsidiary company, that may not be connected with them in any way. I am wondering if these definitions would not reach such a company, and yet they are in no sense public utilities as we generally understand that term.

Mr. CORCORAN. It is practically the same problem that you put up to us the other day, where you had a company furnishing energy to a cotton mill. As you will notice, this definition reads:

“Electric utility company” means any company which owns or operates facilities for the generation, transmission, or distribution of electric energy and which transmits, sells, distributes, or furnishes electric energy for a charge

As I see it there is nothing about that definition to cover a case such as you suggest, where there is a sale of surplus power and yet where the main business, of the cotton mill we will say, is to furnish

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