[ocr errors]

to transmit its surplus current to nearby territory in need of it, now the Gorernment must take the lead if we are to achieve the unification desired in the new war upon economic waste and instability, unemployment, and the progressive destruction of basic natural resources.

(7) Similar recommendations are contained in the report of the waterplanning committee of the National Resources Board, submitted to the President on December 1, 1934. After enumerating the advantages of a “grid " system, such as the British, it cites a specific instance of the great saving that could be secured through the establishment of similar coordination of this country's transmission lines :

“The largest saving arising from a grid is the reduction of excess generating capacity in the interconnected area. In an area extending from Keokuk and St. Louis to Detroit, including Chicago and Milwaukee, the installed generating capacity is 4,585,000 kilowatts, of which only 66 percent was in use as measured by the maximum peak load. Using 15 percent as an estimate of the excess capacity necessary to sound operation, there would remain 1,105,000 kilowatts of installed equipment not in use in this area if all generating plants were feeding into a comprehensive system. At a cost of $100 per kilowatt, this would represent in this area alone an investment of over $110,000,000, on which the utility companies would expect to base their earnings, and which would not be required if the proper interconnections among companies were in effect. The present rate of growth of interconnection is too slow to meet the public need ; the Government should exercise its powers of leadership, as it did during the World War, if we are to increase our consumption of electricity through the lowering rates. Great Britain has recognized this fact and has met the demand by establishing the 'grid' system.”

Mr. E. A. Yates, vice president and chief engineer of the Commonwealth & Southern Corporation, in testifying on April 9, 1935, before the House Committee on Military Affairs, discussed the study which he made in 1920 covering the principal power companies in the States of North and South Carolina, Georgia, Alabama, and Tennessee, and stated :

“This study proved conclusively that by building lines to interconnect those various independent operating units and by coordinating the operations, there will be large sayings due to diversity of load, the diversity of rainfall in the different States, and to the saving of spare units required for break-down service.

“ The lack of centralized control was the chief obstacle to the full accomplishment of savings, as it was impossible to work out effective interchange arrangements and coordinated operation while the companies were under independent and separate ownership.”

The above statement is significant as indicating that under voluntary pooling of power resources it was found virtually impossible to work out effective interchange arrangements and coordinated operation due to lack of centralized control.

The pending bill, S. 1725, before the Senate Committee on Interstate Commerce, in providing for coordination under Federal supervision should eliminate the difficulties Mr. Yates complained of.

The Keller report, published by the War Department in 1921, after referring to the detailed reports describing conditions in several sections of the country, states:

“In a general way the reports may be summarized by saying that a shortage of power existed at the chief industrial centers throughout the United States; that owing to lack of flexible and capacious interconnections between adjacent power systems it was virtually impossible to reduce this shortage by taking advantage of the diversity factor and by releasing for active use part of the installed reserves which interconnection would have rendered safely available; that while existing power systems had planned and started considerable extensions these had been almost entirely discontinued and were therefore no longer in progress owing to financial conditions, which made such extensions virtually impossible of financing for the private corporations concerned ; that no means existed for making extensions and interconnections at public expense with such safeguards as might be deemed necessary for securing reimbursement of all or part of their cost; and that finally no broad comprehensive plans were in exist. ence showing how all existing power resources, steam, as well as hydraulic, should be interconnected, developed, and coordinated so as to serve not only the immediate war needs but also to supply the general public in times of peace with the greatest efficiency and economy.

"As the electric power business is conducted by private enterprise, it is necessary that the monopolies granted to power companies shall be regulated by gov. ernmental commissions. The existing commissions are of State jurisdiction and generally fail to work to a constructive program for unification of systems and centralization of power-generating resources to secure maximum economy for the large districts forming the most economical area for supplying power wholesale. The trouble in this respect is twofold; State jurisdiction is not broad enough for interstate undertakings and the commissions themselves either do not have wide authority or do not take a broad view of interstate opportunities.

No one conversant with the facts of the power industry can deny that the function of coordinating power resources of the economic region is beyond effective legal and practical control of the States, and it seems clear that only the Federal Government can control this process. The history of transportation, as well as the history of the electric-power industry up to the present time, points eloquently to the need for positive planning and supervision of our power resources and operations. This is the only conclusion one can draw from the various authoritative reports and surveys which have been made of this vital problem, and to which I have referred. The best answer I know to the question whether this process of coordination can be safely left to the States lies in the story of what the States have done with respect to the promotion of power development and with respect to interconnection of systems. And the answer is that the States have done nothing in that direction, unless the one or two State surveys to which I have referred may be considered. Keep in mind, gentlemen, that the mere fixing of fair rates by a State commission does not mean an efficient and economic coordination of power resources. And remember that the State cannot insure this coordination because power has developed along regional rather than State lines. When the economic power area coincides with a State line it is a sheer accident, and accidents of this kind rarely have occurred in this industry.

Title II of this bill provides for regional development—the most economic development in this industry—under the supervision of the Federal Power Commission. It proceeds upon the engineering truth that the most effective utilization of our power resources requires positive Federal action, designed to develop these resources on a regional rather than on a State basis.

Until the present time our regulatory power policy has been this purely negative policy of local rate control. Title II of this bill says, "A purely negative policy of rate control by the States is not sufficient to produce an abundance of electricity at the lowest possible price. This negative policy is not enough; it must be supplemented by a positive policy of supervised coordinated power development in the public interest.” This bill offers the picture of local State rate control, marching shoulder to shoulder with Federal control of regional power development toward the objective of an abundance of electricity for all at the minimum price.

The CHAIRMAN. We will meet on Monday morning at 10 o'clock. As I understand it, Mr. McLean will appear at that time.

(Whereupon, at 12:30 p. m., the committee adjourned until Monday, Apr. 22, 1935, at 10 a. m.)


MONDAY, APRIL 22, 1935


Washington, D.C. The committee met, pursuant to adjournment on Friday, April 19, 1935, at 10 a. m., in room 412, Senate Office Building, Sen. Burton K. Wheeler presiding.

Present: Senators Wheeler (chairman), Wagner, Barkley, Neely, Dieterich, Brown, Bone, Donahey, Minton, Moore, Truman, Metcalf, Hastings, White, and Shipstead.

The CHAIRMAN. The committee will please come to order. Before Mr. MacLane, who is going to be heard this morning, comes to the committee table, I will say that I have a letter from Mr. Chantland, attorney in charge of utilities investigation, Federal Trade Commission, which he handed to me the other day with the suggestion that I read it into the record. It will now do so [reading]:


Washington, April 19, 1935. Hon. BURTON K. WHEELER, Chairman Committee on Interstate Commerce,

United States Senate, Washington, D. C. DEAR MR. CHAIRMAN : In my talk before your committee on the 17th, because of my desire to shorten and complete that day I omitted reference to a few points that should have had special attention.


By restatements upward on the asset side of the ledger without the addition of any dollar's worth of tangible assets, portions of such inflation were frequently put into a surplus account, which, of course, is a sheer creation and does not represent a surplus in any true sense whatever. Moreover, in some instances dividends have actually been paid out of such false and imaginary surplus. Clearly, any payments out of such an account weakens the structure accordingly.



In a few insta ces here was actual substitution of securities without consent of the stockholders.

In other cases 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 the 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 earning operating companies.


As some of the members of your committee may recall, the Commission was forced to go into Federal court and received two different decisions from Judge Knox, of New York City, before they were able to procure the operating expense ledgers of the Electric Bond & Share Co. It was necessary for the Commission to have these in order to know the profits which the company has made on its servicing fees. In the Commission's prior investigation, also conducted at the request of the Senate, to determine what the position of the General Electric Co. was in the electrical utility industry, the Commission had conducted much of its investigation by questionnaire and some by personal interviews, but had not examined the books or records of companies, as they have in this investigation. At that time, as a result of statements made by responsible representatives of the Electric Bond & Share Co., the Commission reported to the Senate, in Senate Document 213, Sixty-ninth Congress, second session, relating to these services, as follows:

“That the general service fee just about covers the cost of the service" and that the special fee for engineering " consists of the total of the costs and that the fees charged by its two subsidiary construction companies “just about cover the expenses of the construction companies.”

Based on these three statements the Commission reported that,

“ From the foregoing account it will be seen that the Electric Bond & Share Co, regards this service staff as an auxiliary organization that does not directly produce for the company more than a nominal profit."

When those statements are compared with the facts disclosed after the Commission obtained the operating expense ledgers we apparently find one compelling reason why the Bond & Share Co. resisted the Commission's examination of those expense ledgers. Instead of making no or only a nominal profit, the Commission discovered that over a term of years the Bond & Share Co. collected over $51,000,000 in various fees (pt. 62, Federal Trade Commission Reports, Ex. 5602, beginning at p. 330).

Allocating the expenses as between that applicable to the company's investment holdings and to its service contracts, the Commission found, and reported in chapter IX of its report to the Senate (p. 0205) that for 1927 against a total servicing income of $9,373,172.07 the total servicing expense was $4,403,722.77, leaving an operating profit on all services for 1927 of $4,969,449.30 and a rate of operating profit on cost of all services of 113 percent; that for 1931 against a total servicing income of $11,248,273.17 the total service expense was $5,547,509.83, leaving an operating profit of 103 percent. If, however, the rate of operating profit be calculated on the cost of those services from which alone, under the contract, profit could arise, the rates of profit for the years 1927 and 1931 were respectively 269 percent and 157 percent. It is not easy to see how representatives of the company could honestly state that with such profits the fees amounted to practically cost.

The income from those services, etc., contracts amounted to just over 50 percent of the total income for 1927 and slightly under 50 percent for 1931. (F. T. C. reports, pt. 62, p. 333.)




The deal by the New England Power Association group in acquiring the Narragansett Electric Lighting Co, recalls to mind the Alton and Rock Island deals, and should remind the New Englanders of the New Haven. The Narragansett Electric Lighting Co. was a fine, prosperous, independent operating company. On the morning of November 30, 1927, its balance sheet figures stood at $33,588,781.97, with no funded debt. Later in the same day its successor company of the New England Power Association group, the Narragansett Electric Co.'s balance sheet stood at $54,303,137.71, a write-up of

« ForrigeFortsett »