hear you.

that purpose. However, I am going to express the hope that I may be regarded here as a witness rather than as a lawyer, although what I will say will have its legal implications and connotations. And I shall try to speak of this bill which we are going to discuss, from the standpoint of my observation and my experience in the electric business. During the course of my remarks I shall digress to refer to the matters which were suggested in the letter that has just been read into the record.

I have prepared a memorandum

The CHAIRMAN (interposing). Mr. MacLane, will you speak up a little louder? I am a little hard of hearing myself, and wish to

Mr. MacLANE. I will do my best. I have prepared a memorandum which contains an outline

The CHAIRMAN (interposing). I hope the people in the room will be as quiet as possible and abstain from whispering, back there in the audience, because it disturbs the proceedings of the committee. and it is difficult for me to hear when there is whispering going on back in the room.

Mr. MacLANE. I have prepared a memorandum which contains an outline of the topics I am going to discuss here today, and I believe a copy of this memorandum has been placed before each member of the committee.

There is also before each member of the committee a memorandum entitled “Memorandum on the Economic Effects of Holding Company Dissolution under the Public Utility Holding Company Act of 1935”, prepared by David Friday, an economist whom you all know by reputation. I have used in my memorandum some of the general figures or statistics the basis of which is the Friday memorandum.

I think there is also before each member of the committee an analysis of this bill, S. 1725, that we are going to discuss.

Now, this bill as I see it is a proposal to reorganize the publicutility industry of the United States. While it is frequently referred to as the “ holding company bill", yet by its terms, as I think I can hereafter show, it spreads out to almost every operating utility in the United States, and will vitally and materially affect their operations. It proposes a complete dissolution of the nexus between holding company and operating companies, and it proposes a method of regulation, and I might say of administration, of these operating companies different from the method of operation which exists today.

It has seemed to me that a proposal to reorganize an industry involves as a necessary and basic assumption the predicate that that industry has so far failed to justify itself economically and socially; that it must be, as I believe was suggested either before the House committee or in some statement made publicly, a cancerous growth on the body politic which is just so bad that corrective measures will be of no avail and the industry as it exists must be uprooted and something else substituted in its place.

Now, the truth of that predicate or assumption can only be found. it seems to me, in the history of the industry, and I am not going to burden you or bore you with statistics that have been given time and time again, but as a preface for what I shall say later I should like to refer briefly to a few of the major and controlling statistics showing the growth and progress of this industry, so that you may determine for yourselves whether these charges which have been made are entirely justified or at all.

I show on page 3 of this memorandum some figures, under the table entitled Growth of Electrical Industry”_and I might remark parenthetically that I refer in a footnote to Dr. Friday's memorandum, pages 5 and 6, who had treated me a little unfairly by rerising his memorandum since I wrote this magnumopus, and the pages should now be 4 and 7.

The date of the birth of the electric industry is usually referred to as 1882, which is the time when the old Pearl Street Station in New York was first installed. You will note from this table that in the 20 years from 1882 to 1902 the total investment of that industry was 483 million dollars—a comparatively small sum of money in these days—and the total generated kilowatt-hours were 2,507,051,000, and the total number of customers served was 583,000.

Without reading this table at length you will observe, again, that up to 1932 the plant investment had grown to $12.125,000,000. The CHAIRMAN. Do you mind if I interrupt you for a question? Mr. MacLANE. No, sir.

The CHAIRMAN. Now, of that 12 billion dollars, how much is invested in operating companies and how much in holding companies?

Mr. MACLANE. I cannot answer your question with complete accuracy, but I believe that represents operating company investment. The figure that is usually given as the consolidated total or aggregate of securities outstanding, is something like 19 billion dollars. That 19 billion dollars, of course, represents or includes the securities issued by holding companies against operating company securities, so that there is to that extent a duplication. But I think this represents actual investment in physical plant.

The CHAIRMAX. Mr. MacLane, my understanding, although I may be wrong about it, but at least my understanding of the testimony previously given here is that the 19 billion dollars was the stockmarket value of these securities along in some period like 1929, and that the actual investment in the companies consisted of approximately 12 billion dollars as distinguished from the stock-market value.

Mr. MacLANE. Well, I think the market value figures do enter into that 19 billion dollar computation. My understanding is that it is $12,125,000,000 that represents actual investment in physical plant.

The CHAIRMAN. On that let me ask you this further question: The so-called "American Liberty League" which has been condemning or at least objecting to this bill, has issued a statement in which they say, as I recall, or the statement was to the effect that 10 billion dollars was invested in operating companies and 2 billion dollars in holding companies.

Mr. MacLANE. Well, I cannot answer that question. I am taking these figures

Senator MINTON (interposing). What actually went into plants?

Mr. MacLANE. My understanding is that this represents actual securities sold for cash the proceeds of which went into the physical plants in this country. As I say, I have taken these figures from Dr. Friday's memorandum. Dr. Friday is available at any time you gentlemen might want to hear him, if you do. These figures are the ones commonly quoted, and I have seen them used again and again throughout the hearings on this subject, and they have been accepted for the purpose of argument as correct.

The CHAIRMAN. The only thing is this, as we go along I want to correct the impression I have had if I am wrong, that approximately 9 billion dollars was actually invested in operating companies, and that from 2 to 3 billion dollars has been invested in holding companies, which is quite a different thing from an investment in operating companies, because as I understand it, and if I am wrong I want you to correct me, the 2 or 3 billion dollars which is invested in holding companies as a matter fact was used for the purpose almost entirely of buying up the securities of the operating companies as distinguished from putting it into the operating companies.

Mr. MacLANE. Well, Senator Wheeler, if it represented moneys paid for existing operating companies it would be an investment in the industry.

The CHAIRMAN. Oh, no.

Mr. MacLANE. These figures of additions which are shown in the second column of the tabulation represent average plant additions per year

or moneys which have been added during the 5-year periods. The CHAIRMAN. There would be quite a difference between an investment in a holding company that went out and used the money you invested in it to buy stocks and bonds of operating companies and money directly invested in operating companies.

Mr. MacLANE. Not if the table is correctly prepared, because of course it would be an algebraic addition of additions, less retirements.

The CHAIRMAN. Will you tell me how much money was actually invested in holding companies that was actually put into operating plants?

Mr. MacLANE. No; I cannot give you the figure with accuracy because a great part, or not a major part by any means, but a subtantial part of the assets of holding companies today—that is, the better and sounder holding companies--consist of cash and cash items which are available as working capital for the industry although not presently invested in plant. "Now, just how much is invested in plant and how much is retained as working capital, I haven't the break-down.

I have taken these figures, as I have already stated in my memorandum, from Dr. Friday's brief, and they correspond with the figures I have seen commonly used as representing physical plant investment, and from the context I assume them to be such.

The CHAIRMAN. You understand that I am simply asking for information.

Mr. MacLANE. I understand.

The CHAIRMAN. Because one thing I want to do and the committee wants to do is to check up on these discrepancies, if there are discrepancies.

Mr. MacLANE. Certainly.

The CHAIRMAN. Between what the Government men say and what your agencies are contending for.

Mr. MacLANE. Didn't Mr. Corcoran use the figure $12,000,000,000 as representing investment, the other day?

The CHAIRMAN. I did not so understand him.

Mr. MacLANE. I think he used that figure. Well, the answer to that question can be supplied by Dr. Friday, and we will ask him either to appear here before you or write you a letter, whichever you choose, giving you just exactly what this figure represents. But it is obvious from the context that it is intended to represent entirely physical investment. The heading of the table is Investment in plant, and his next column is Average added annually, meaning during each 5-year period.

Now I have used these figures, as I have said, to show this growth in plant investment within a period of 30 years, the average requirements for capital annually throughout that period broken down in 5-year periods. And you will note that at the peak, from 1922 to 1927, the average annually added was $930,000,000 put into this business during those years. The $930,000,000 per year,


and even for the 5 years ending 1932, which included 3 years of depression, this industry was putting into plant, if these figures are correct, $649,000,000 per year. The kilowatt-hours generated increased from 2,507,051,000 in 1902 to a total of 79,657,466,000 in 1932. And I might remark that in 1929 the figure was over 90,000,000,000 kilowatt-hours. The number of customers served increased from 583,000 in 1902 to nearly 24,000,000 in 1932, and to nearly 25,000,000 in 1934.

Now all that that means is that in 30 years this industry has multiplied its investment about 24 times, its output about 34 times, its number of customers about 50 times, which is, it seems to me, in comparison with any other industry, a remarkable achievement.

In the back of this memorandum I include two maps which I think you will find to be interesting. One I have had prepared from available sources, principally McGraw & Hill Directory of 1904, which was the first year of that publication, contained a summary of the electric plants of the country. Engineers, at my request, have looked through all the available published data of that period in order to show interconnections of transmission lines, and so forth, as they then existed.

This map shows all the plants in the country over 3,000 kilowatts in capacity. I wanted to take the smallest figure of which we could get available records. It cannot be claimed to be absolutely complete, but it is certainly complete enough to be typical. The source of the data, as I have said, is the McGraw & Hill Directory, which is a standard publication of the industry. And it shows all the lines of 20,000 volts and over.

A 20,000-volt line today is really a distribution voltage line. It would hardly be considered a transmission line in these days. It is significant to note that nearly all the transmission systems there were in the country were in the mountain districts of the West, and perhaps the most significant developments were those around the San Francisco Bay district in California, and the Salt Lake City district in Utah. There were a couple of gentlemen out in Utah in those days, the Nunn brothers—L. L. and P. N. Nunn—who, by the way, formed a holding company, and they had a structure of great complexity beside which even ours of today is rather modest in interrelationship.

The Nunns in 1896 built the first 40,000-volt line that had ever been constructed anywhere, a line from near a place marked

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“ Prevo on this map, where there was a place called “Nunn Station over to Mercur. At the same time Nunn built a line from Madison up into Butte, Mont. The Mercur line was the first longdistance transmission of over 20,000 volts that we had in this country.

Now, if you will turn to the other map you will see from its physical aspect, while I haven't the actual plant capacity there, what has been done by this industry over these 30 years in the matter of interconnection of plants and systems and integration of systems. We have an almost completely integrated system with perhaps a breakthrough along the Allegheny Mountain Ridge, extending from far west of the Missouri River to the Atlantic coast, and from the Great Lakes to the Gulf of Mexico.

In the West we have a similar system all along the Pacific coast from San Diego on the south to Vancouver, British Columbia, on the north, and extending east from Seattle and Portland clear through to eastern Montana. We have another system extending from the boundaries of southern Utah, going down into St. George and clear up to La Grande, Oreg., through Utah and Idaho. About the only systems that are not interconnected today and integrated with other systems are the systems in Arizona, a few small systems in New Mexico, and a few in Colorado and Wyoming. There are some minor exceptions but that is the picture in brief.

These maps at the same time show graphically that this growth I talked about a few minutes ago has not been an exploitation of the centers of population but in reaching out all over the country in order to carry this electric service to all communities of the country, even to the smallest hamlets. I am going to refer to the Federal Trade Commission for support of that statement a little later on.

The growth of the industry in the diversification of use is even as significant as its aggregate physical growth. Originally the electric service was principally a lighting service, which first competed with and then supplanted gas. There was but an occasional instance of central-station service, or at least to any considerable extent; but in 1929, 74 percent of the industry of the country is said to have been electrified, and 52 or 53 percent of the industry of the country was supplied with electricity from central-station plants; in other words, from public utilities.

Now, I have myself seen the power companies extend their lines from Salt Lake City, for illustration, up into the coal fields of Carbon County, Utah, in the extreme eastern part of the State, to serve coal mines with electricity where before those coal mines used their own coal for that service. In other words, the power companies were able to extend their lines 100 or 150 miles and shut down the coal company's own plants and supply them with their service, which meant that they were doing it, of course, on a competitive basis.

And that same

The CHAIRMAN (interposing). Isn't it true now that they can produce electricity by the use of coal about as cheap as they can with water power?

Mr. McLANE. Yes; according to the section of the country. That is really a rather complicated problem. It depends upon so many elements. You have to have, first, a grade of coal, which is an important thing. And, secondly, is your question of condensing water,

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