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All securities in the hands of the public are securities issued by American Gas & Electric Co. itself or by an operating company controlled directly by the American Gas & Electric Co.

Every operating company is subject to State commission control.

American Gas & Electric Co. itself has staff of technicians, accountants, lawyers, statisticians, corporate officers, and related clerical force.

This staff performs, on a cooperative basis (that is, each company bearing only its share of the total cost), managerial, legal, purchasing, insurance, accounting and auditing, commercial, statistical, appraisal, and engineering services, besides the service of corporate officers.

There is no duplication of work done by the operating companies themselves. This staff is in effect part of the organization of the operating companies

. Although the entire staff would be available to any one of the operating companies in case of necessity, the part thereof whose cost is borne by a given operating company as related to total employees of that company is shown by this chart to be insignificant. Personnel-Officers and employees on the property and in American Gas & Electric Co. staff, a typics!

company (Indiana & Michigan Electric Co.)

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BALANCE SHEETS Observe strength of parent company and its ability to lend financial support to its subsidiaries.

Cash and current assets are $20,000,000 in excess of current liabilities.
Only three security issues-debentures, preferred, common. No bank loans.

Company owns mortgage bonds of subsidiaries more than equal to its own debenture debt; owns preferred stocks of subsidiaries almost equal to its own preferred stock.

Observe strength of entire goup

Cash and current assets equal to about three and one-half times current liabilities.

Reserves equal to more than 10 percent of investment.

American Gas & Electric Co.'s own balance sheet as of Dec. 31, 1934

ASSETS

The company owns

Bonds of its subsidiary companies ---
Preferred stock of subsidiary companies.
Common stock of subsidiary companies--
Accounts due from subsidiary companies---

$56, 491, 760 29, 447, 509 54, 342, 353 2, 968, 941

Total
Miscellaneous investments.
Cash and other current assets -
There is discount and expense in connection with the outstanding

debentures, now being written off, the balance..

143, 250, 563

1, 946, 372 21, 526, 000

5, 861, 492 172, 584, 425

Total assets.

LIABILITIES The company owes

Debentures

Current liabilities -
The company has reserves for taxes, etc.
The preferred stockholders have invested.
The common stockholders have invested and reinvested:
Stock

$44, 827, 377
Surplus

40, 479, 330

$50, 000, 000

875, 575 2,686, 306 33, 715, 837

85, 306, 707

Total --

172, 584, 425

American Gas & Electric Co. and subsidiaries, Dec. 31, 1934

ABBETS

The subsidiaries own plants, lines, buildings, real estate, machinery, equipment, representing ---

$394, 932, 541 The group own Securities of other companies

3, 079, 354 Amounts due from jointly owned companies.

2, 230, 073 Special deposits

319, 711 Cash and other current assets

50, 505, 220 The group has

Prepaid expenses, cash tied up in banks and materials salvaged from facilities removed..

1, 513, 623 Miscellaneous suspended items..

110, 562 Discount and expense on debt outstanding, which is being written off, the balance of which is now..

13, 314, 275 Total...

466, 005, 359

LIABILITIES

$194, 246, 400 14, 565, 306

206, 809

45, 954, 606

475, 230 82, 414, 016

The group owes

The public for money borrowed.---
Current liabilties.---

Contractual liabilities...
The group has accumulated reserves for depreciation, for taxes,

for bad debts, etc.----
There are miscellaneous suspended credits of.
The preferred stockholders of the group invested..
The common stockholders have invested or reinvested:
Stock..

$44, 827, 377
Surpluses.-

66, 609, 598 The parent company holds securities of its subsidiary companies

at a lower figure than the book figures for those securities, such difference amounting to...

Total...

111, 436, 975

16, 706, 017 466, 005, 359 Parent company advances money to meet construction needs of subsidiaries. At peak of such advances, subsidiaries had borrowed more than $40,000,000.

Gross capital expenditures of subsidiaries in last 10 years has been in excess o $200,000,000. In same 10-year period parent company has put more than $96,000,000 of its money into then owned subsidiaries through purchase of their bonds, preferred and common stock (bonds, $56,000,000; preferred, $20,000,000; common, $22,000,000).

Actually in last 7 years the public investment (as distinguished from American Gas & Electric stockholders) in the group has increased practically not at all; the entire net increase in investment has been American Gas & Electric stockholders money:

“Write-ups" aggregating $42,500,000 by our subsidiaires have been alleged. The balance sheets above will show that even if that amount be taken out of fixed capital the American Gas & Electric common-stock holders have an investment of $85,000,000.

“Write-up” in our system is the result of operating companies stating on their books the values of property as of date of acquisition rather than stating socalled “historical cost" on books of former owners. “Write-ups" can be unfair and harmful to investors or customers only if they represent more than true value of the property; and then only if:

A. Securities be sold to the public supported by such "write-ups".
B. Such "written-up" values be asserted in determination of basis for rates.

A. This graph shows positively that there are no securities in the hands of the public, either of the holding company or of the operating companies, representing any part of these “write-ups". Even if the entire "write-up" be deducted from the assets, there still remains $38,000,000 more assets than all securities in the hands of the public.

B. For the year 1934 combined earnings of all subsidiary operating companies were equal to 5.85 percent on fixed capital as shown on their books; and would be equal to only 6.52 percent on fixed capital if every dollar of alleged "write-up" were deducted. Rate reductions in several companies were made in 1934 and not fully reflected in above earnings; and further reductions have been made in 1935 by practically all our subsidiaries.

ENGINEERS PUBLIC SERVICE Co., Inc.,

New York, April 26, 1935. S, 1725 Hon. BURTON K. WHEELER, Chairman Committee on Interstate Commerce,

United States Senate, Washington, D. C. Sir: The relatively short time available for presentation before your como mittee of objections to the bill above mentioned necessitates the filing in writing with you of information regarding my company, the Engineers Public Service Co. (Delaware). This company's voting stock of 1,910,000 shares is owned 91 percent by Stone & Webster, Inc., also a Delaware corporation. As this interest was referred to by proponents of the bill before your committee, it seems to me desirable that this letter, giving the facts about my company, be made a part of the record of the hearings.

I have left with the clerk of your committee a copy for each member of a brief respecting the Engineers Public Service Co., which I had prepared for use in presenting the matter to the corresponding committee of the House of Representatives, and to which reference is made for details too voluminous to include in this letter. In general, 90 percent of the properties controlled by my company are comprised in four well-integrated groups and a fifth, partly integrated, accounts for half the balance; the three remaining are isolated and cannot properly be tied in with other systems. (See map as frontispiece of brief.) . The properties of the Engineers system manufacture about 2,000,000,000 kilowatthours per year, or about 244 percent of the Nation's output.

With regard to title I of the bill, I am in complete accord with most of its provisions for Federal regulation of utility holding companies, but object most strenuously to the provision to abolish the holding companies; especially as it is based on the premise (set forth on p. 5, lines 19 and 20) that the holding company is "inherently injurious to investors, consumers, and the general public."

That abuses as set forth in the 12 points in the bill have been incidental to holding-company operation by some companies is freely admitted, but since many companies have not practiced them, they cannot accurately be described as in

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herent in holding companies. On the contrary, I believe the record of my company shows that the benefits to investors, consumers, and the general public are inherent in the holding company and the abuses incidental. For the future, we feel that these abuses should be eliminated by regulation and the benefits thus conserved.

The accompanying brief discusses how the company stands with respect to the more important abuses which have been charged against the holding companies, such as write-ups, inside profits, pyramiding, control, upstream loans, accounting practices and reports to stockholders, financial jugglery, rates to consumers, economic integration for the benefit of the public served. This discussion begins on page 12 of the brief. There are two points among these subjects on which I will touch in passing.

With respect to complication of financial structure, this company has an intermediate holding company in its structure which no longer serves a useful purpose and has not been removed simply because of the high cost of taxes required in the removal (see p. 16). The removal of such taxation has received consideration by the framers of this bill and will enable considerable simplification in our opinion.

With respect to “integration", it is clear that this company has assisted its subsidiaries to accomplish the fullest economic development of the areas served (see p. 10), which is our interpretation of the meaning of this term. It is not defined in the act, but the lack of it is in the act made the basis for dissolution. It is assumed to mean that all of the subsidiaries of a given holding company must, on pain of dissolution, be physically interconnected. It means therefore that if all the subsidiaries of a holding company are in one interconnected ares, it is a good holding company and can live, but if they are not capable of such interconnection economically, then it is a bad holding company and must dissolve

In common with other holding companies similarly circumstanced, we have pointed out that the electric business is essentially a local business (the average trip of a kilowatt-hour country-wide being only about 20 miles), that we have effected an extraordinary integration in the areas where we do serve and that the manifest investment value of geographic diversity ought to be an offset to the lack of complete physical integration of the system. From the proponents this has met with merely a barrage of ridicule to belittle the value claimed for the geographical diversity mentioned. Without attempting to evaluate diversity exactly, it is certainly better than none at all. As a matter of experience in our 10-year life, we have found the geographic diversity of the parts of our system of distinct advantage in maintaining an average flow of earnings.

The diversity we enjoy is not merely geographical, it is also industrial. The Virginia company is in effect an investment in tobacco, paper, and miscellaneous manufacturing. The Gulf coast properties are an investment in oil, rice, and lumber. The El Paso properties represent copper, cotton, and cattle. The Puget Sound district has lumber, fisheries, fruit, and shipping to the Orient. The Nebraska group depends on sugar and corn. The two largest properties are 3,000 miles apart. Surely all this does not represent a merely chimerical diversity. Moreover, it is clear that the individual properties have fully discharged their social obligations to carry service widely through the area and to extend service to rural areas on a development basis before such extensions can be fully justified economically. In the Puget Sound district has been achieved a percent of farms electrified which is about five times as high as the national average.

The proponents have dwelt at length on the evil said to arise from concentration of control of utilities. We have no desire to perpetuate any system which may be inimical to the public interest. We wish to point out two considerations, however. In the first place, the holding company plan was not the choice of the holding companies; they would infinitely prefer consolidation in one operating company. This has always been and is impossible because of the diverse requirements of State laws, franchise requirements, and existing financial setups.

In the second place, while control may at first glance seem like a privilege, there is also the unavoidable responsibility that goes with ownership and it ought to be a question to be carefully weighted as to whether the public interest is really best served by removing from the owners of a public-utility property the responsibility which in all other kinds of property inheres with ownership.

Based on over 30 years' experience in the public-utility business, I am convinced that the holding company is an inherently useful device for public service and that the abuses which have arisen are incidental excrescences which reason

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