Stocks of certain holding companies held by the United Gas Improvement Co. as miscellaneous investments, themselves subject to reorganization or dissolution The Commonwealth & Southern Corporation as of Dec. 31, 1933 Southeastern Power & Light Co. 6 percent debentures, series A, due 2025__ Penn-Ohio Edison Co.: 6 percent debentures, series A, due 1950__ Stocks of other companies * Includes 20,445 shares $6 preferred stock held by the American Gas Co. NOTE.-Not including companies in receivership. 324/100,000 $7 second preferred 1, 188 Common.. 13, 925 Capital. Common... 1,655 643, 441 5/100,000 7.97 3.31 1/36 7.36 .do. Common. 617 10,000 2,017, 490 3/100,000 43/100,000 3. 25 27.86 1/12 $5 preferred.. Capital. .do. 497 1,844 35, 310 4/100,000 6-percent second Niagara-Hudson Power Corporation as of Dec. 31, 1933 Common stock, par $15 (9,262,220 shares) Notes payable, banks.. $138,933, 300 12, 300, 000 Public Service Corporation of New Jersey as of Dec. 31, 1933 Common stock, no par (5,503,193 shares). Preferred stock: 6 percent cumulative par $100 (598,864 shares). $5 per share per annum no par cumulative preferred (517,369 shares)... Long-term debt.. $149,933, 694 The Commonwealth & Southern Corporation Subsidiary Companies-Consolidated capitalization of the Commonwealth & Southern Corporation Subsidiary Companies, as of Dec. 31, 1933 1 Consolidated capitalization of the Niagara Hudson Power Corporation subsidiary companies as of Dec. 21, 1933 1 Buffalo, Niagara & Eastern Power Corporation: Common stock.. Consolidated capitalization of the Public Service Corporation of New Jersey subsidiary companies as of Dec. 31, 1933 Public Service Electric & Gas Co.: Common stock. Preferred stocks. Funded debt.. Public Service Coordinated Transport: Common stock (not including miscellaneous stocks) Preferred stock.. Funded debt__ PHILADELPHIA ELECTRIC CO., EXPANSION UNDER U. G. I. AUSPICES The present Philadelphia Electric Co., the most important subsidiary of U. G. I., is an excellent example of the method by which large and efficient service areas have been built up, with the corresponding benefit to consumers of reliability of service, decreases in rates and extensions to outlying territories previously without service. U. G. I. at one time owned small, scattered electric and gas plants in the suburbs of Philadelphia. These independent units were formed into a consolidated company, leaving Philadelphia proper and one adjacent county served by an indeper.dent company-the Philadelphia Electric Co.-and a large suburban area on each side of U. Ġ. I.'s company served by a subsidiary of still another independent company-the American Gas Co. Thus three contiguous systems were occupying an area which clearly should be served by one system alone. With this goal in view, the U. G. I. obtained control of the American Gas Co. in 1925, in order to merge that company's operating subsidiary with U. G. I.'s operating subsidiary. In 1928, the Philadelphia Electric Co. was acquired and in due course the whole area was consolidated by the merger of the various operating companies into the present expanded Philadelphia Electric Co. Thus what were once some 60 individual companies, mostly under different ownership, have been brought into one large company serving some 2,000 square miles of territory at rates from 40 to 60 percent lower than previously. This one company serves 70 percent of the farms in its territory. 1 Merged into Niagara Hudson Power Corporation in October 1934. THE PRESENT FUNCTION AND POLICIES OF THE COMPANY RELATION TO SUBSIDIARY COMPANIES U. G. I.'s administrative functions with respect to its subsidiary companies have developed and changed along lines parallel to the development of the operating companies themselves. In the earlier days of small isolated companies, none of sufficient financial strength itself to support a highly developed technical staff of specialists, U. G. I. provided each of them with such services. As the companies were gradually brought together into larger groups, these groups were developed into substantial, autonomous and self-contained units with their own local boards of directors representative of the consuming public in the localities served, and with fully manned staffs of specialists. However, even in the case of such large operating companies, there remain certain services that can be provided more economically by the central organization, such as group purchasing, stock transfer and other work. For the smaller operating companies there still remain many services to be performed by the central U. G. I. organization, such as operating problems, expert assistance on sales, technical advice on production, distribution, and construction; financial assistance, both in advice and in advancing temporary capital at proper rates; and commercial and accounting advice. These services are provided at cost where any charge at all is made, but much of the work is done without cost to the operating companies. U. G. I.'s chemists, engineers, accountants, business managers, and technicians contribute to its companies a service far superior to that which could be possible through the limited resources of the individual companies themselves. U. G. I. does not manage, it performs expert services when needed by its subsidiary companies at less cost than they could be obtained elsewhere, and with greater efficiency on account of its intimate knowledge of the properties, their personnel, and problems. Income from this source is relatively of no moment. For example: Dividends and interest received from subsidiaries in 1934, $23,725,000; charges for services to subsidiaries, $375,000. RESEARCH Reference has been made to the important feature of research, which is going on continuously at the sole expense of U. G. I., and of the company's contributions to the art in the earlier years of its history. Of the more outstanding developments in recent years are the U. G. I. process for using heavy oils in the manufacture of artificial gas; its process for the reforming of high British-thermal-unit hydrocarbon gases into gases suitable for mixture with ordinary blue gas, and its process for producing in carburetted water-gas sets a substitute for natural gas with a British-thermal-unit content approximating the latter. The companies which U. G. I. controls have had the use of these processes and discoveries at no cost to them, which has resulted in annual savings since 1930 of approximately $2,200,000, besides which they have been made available to the industry in general upon the payment of reasonable royalties. Such outside companies as have adopted these processes are saving $1,500,000 a year. RATE REDUCTIONS U. G. I.'s subsidiaries have consistently lowered their rates. In the annual report to the stockholders for the year 1930 the company's policy was stated as follows: "Rates should be constantly adjusted so as to yield only a fair and reasonable return on the value of the property devoted to the public use. This return should be sufficient at all times to attract new capital and to include a reward for efficient, enlightened, and honest management. Economies resulting from efficient management and from mergers, consolidations, and interconnections should be shared with the consumer in reduction of rates." During the past 10 years alone, the system companies have reduced rates over $18,250,000 on an annual basis. If the accumulated effect of such savings to customers is considered, the total figure is increased many times. Not one year has gone by without a rate reduction in one or more companies in the system. With the exception of the war period, when U. G. I.'s earnings were materially decreased due to higher costs, rate changes have always been in favor of the consumer. During that period, when other industries were operated at tremen dous profits, the net earnings of the U. G. I. fell far below the pre-war level, its companies absorbing much of the increased costs rather than pass them on to the consumers through increased rates. CORPORATE SIMIPLIFICATION It is the policy of U. G. I. to simplify corporate structure. This has been carried out to a major extent wherever the law permitted in the case of its operating companies. Within the last 5 years, over 50 companies have been eliminated from U. G. I. corporate structure and it is contemplated that 10 companies will be eliminated in the near future. Mention has been made of the great difficulty of eliminating some of the sub holding companies, on account of outstanding guarantees of securities or other legal obstacles. None of these sub holding companies has been organized by U. G. I. for the purpose of giving more vehicles for obtaining capital without loss of control by dilution of voting power. They are, on the contrary, the result of U. G. I.'s constructive work in bringing properties together in geographical areas. THE COMPANY AND THE WHEELER-RAYBURN BILL THE INDICTMENT The Wheeler-Rayburn bill, title I, section 1 (b), indicts the utility-holding companies on 13 counts. These indictments, with U. G. I.'s answers, are given herewith. (1) Wide distribution of securities: "The securities of such public-utility holding companies, subsidiary companies, and affiliates are sold to a large number of investors in different States." Guilty.-Stock of U. G. I. is held in every State of the Union by large numbers of small investors. Some 48,000 stockholders-47 percent of the total-each has an investment represented on the books of the company at $265 or less, an average of $130. (2) Such investors cannot obtain necessary information: "Such investors cannot obtain the information necessary to appraise the financial position or earning power of such issuers because of the absence of uniform standard accounts." Not guilty.-U. G. I. issues full information, in great detail, to its stockholders, to the stock exchanges, to investment services and manuals, to insurance companies, and to all other investors or prospective investors in its securities and those of its subsidiary companies. To quote from Standard Statistics Co., Inc.-"The company's accounts are gratifyingly informative and detailed." (3) Such securities are issued without approval of the States: "Such securities are issued without the approval or consent of the States having jurisdiction over subsidiary public-utility companies." Not guilty.-The Public Service Commission Act of Pennsylvania became effective January 1, 1914. Since that date, this company has filed with the commission certificates of notification on every issue of its securities. Since the amendment of the act, effective July 1, 1933, the Public Service Commission of Pennsylvania has full jurisdiction over the issuance of securities of this company. (4) Such securities are issued on the basis of fictitious values: "Such securities are often issued upon the basis of fictitious asset values and of paper profits from intercompany transactions and do not accurately reflect the sums invested in underlying public-utility properties." Not guilty. Every share of stock issued by this company in the 53 years of its history has been issued in accordance with the provisions of the Constitution of the Commonwealth of Pennsylvania that "no corporation shall issue stocks or bonds except for money, labor done, or money or property actually received." As evidence of the fact that the books of this company fairly reflect the sums invested in subsidiary companies' properties, there is no excess cost over the aggregate par or stated value of subsidiary companies' securities. On the contrary, on a consolidated basis December 31, 1934, the aggregate par or stated value of subsidiary companies' securities actually exceeded by about $3,400,000 net, the amount at which such securities were carried on the books of U. G. I. and its subsidiary holding companies. |