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PUBLIC UTILITY HOLDING COMPANY ACT OF 1935

WEDNESDAY, APRIL 17, 1935

UNITED STATES SENATE,
COMMITTEE ON INTERSTATE COMMERCE,

Washington, D. C. The committee met, pursuant to adjournment on yesterday, at 10 a. m., in Room 412, Senate Office Building, Senator Burton K. Wheeler presiding.

Present: Senators Wheeler (chairman), Lonergan, Bone, Donahey, Minton, Moore, Truman, Couzens, Hastings, White, and Shipstead.

The CHAIRMAN. The committee will come to order. I wish to say this morning to those representing the opposition to the bill, S. 1725, you submitted to me a list of names of persons you desired heard. I understand that that is practically the same list of names of persons heard before the Committee on Interstate and Foreign Commerce of the House of Representatives. I just want to warn you in advance that you are not going to have the time you had before the House committee. I am only going to give you to the end of next week. You will just simply have to arrange your affairs and your witnesses to meet that suggestion.

Somebody has suggested to me that they wanted to have the group heard with reference to gas. You will have to come within the time I have mentioned. You gas people and you electric-light people will have to get together and arrange the time among yourselves, for we are going to close these hearings at the end of next week. So I just want to give you that notice now, and there is going to be Do carrying on indefinitely in our hearings.

Senator WHITE. Mr. Chairman, would it be possible, and I do not know that these interested parties want it, but would it be possible to assign to each group a definite time? Now, if you say you are going to close the hearings at the end of next week that may mean much or it may mean little, depending upon the actual time the committee is in session. I am wondering if it would not be more satisfactory to all concerned if they could know definitely that they might have, say, 2 hours or 1 hour or 3 hours, or whatever the time might be that would be allotted to them.

The CHAIRMAN. What I intend to do is to give them at least 2 hours every morning, and probably will give them as much more time in the afternoon as we possibly can. But that will have to depend entirely upon the situation over on the floor.

Senator WHITE. Well, just so that each one of them could understand that his group, or each group, would have, say, at least 2 hours. The CHAIRMAN. Yes; 2 hours every morning. And then if it is possible, I will give them more time by holding afternoon sessions. But I want them to definitely understand we are going to close these hearings a week from Saturday, and want them to so arrange their witnesses. And I will add this statement: That if any of your people have not then testified before the committee and desire to file statements I will permit them to do so, and their statements will be made a part of the record, but I am not going to take up the time of the committee with repetition of a lot of matters.

All right, Mr. Chantland, we will hear you.

STATEMENT OF COL. WILLIAM T. CHANTLAND, ATTORNEY IN

CHARGE OF THE LEGAL DIVISION IN THE UTILITIES INVESTI. GATION BY THE FEDERAL TRADE COMMISSION, WASHINGTON, D. C.

Colonel CHANTLAND. Mr. Chairman, will you sit until 12 o'clock?

The CHAIRMAN. You may go ahead. We will try to remain in session longer than 12 o'clock today, if possible.

Colonel CHANTLAND. I should like to finish today, if I may.
The CHAIRMAN. Go ahead.

Colonel CHANTLAND. Mr. Chairman and gentlemen of the committee, for the record I should state that I am the attorney of the Federal Trade Commission's staff who, since Judge Healy became a member of the Securities and Exchange Commission, has had charge of the utilities investigation carried on at the direction of the Senate. Prior to July 1, 1934, when Judge Healy was appointed to the Securities and Exchange Commission, I was his chief assistant and, so to speak, executive officer, and have devoted my entire time to the investigation of utilities throughout its entire period, from February 15, 1928.

At the request of Senator Wheeler, I shall endeavor to tell you something about the character of the evidence and how it was gathered, in the investigation which the Senate directed and which has led up to this bill, as well as to other legislation already enacted.

The CHAIRMAN. I understand that what led up to the investigation was that my former colleague (Senator Walsh) wanted to have the investigation made here by the Senate.

Colonel CHANTLAND. Yes, sir.
The CHAIRMAN. But

the utilities were opposed to it. They wanted to have it done by the Federal Trade Commission.

Colonel CHANTLAND. That is correct.

The CHAIRMAN. And after they had had it done by the Federal Trade Commission they probably wished they had had it done by the Senate; is that it?

Colonel CHANTLAND. I have heard expressions to that effect, Senator Wheeler.

The CHAIRMAN. Go ahead with your statement.

Colonel CHANTLAND. I hope to make the kind of statement which will be informative in showing the convincing nature of the evidence. The facts as developed by our investigation are all of the utilities' own making and have been checked by them before introduction into our record. But, cf course, the conclusions stated are our own;

that is, of the Commission, or of our examiners, where so stated, but the facts are of that nature.

The procedure was well and accurately described before the House Committee on Interstate and Foreign Commerce by Judge Healy the other day

The CHAIRMAN (interposing). So that we may have it clearly on the record, the facts that you are going to give us are facts that have all been checked with the electric companies themselves, or the holding companies themselves, whichever it may be in any particular case.

Colonel CHANTLAND. Yes; with their representatives and their coun-el.

The CHAIRMAN. But the conclusions which you base upon those facts, of course, are the conclusions of the Commission itself?

Colonel CHANTLAND. Yes; or of its examiners in event conclusions are stated in examiners' reports. Of course, those conclusions stated in the final report are the conclusions adopted by the Federal Trade Commission.

The CHAIRMAN. All right. You may proceed.

Colonel CHANTLAND. As I have stated, the method of procedure was accurately stated, and quite briefly stated, by Judge Healy in his testimony before the House Committee on Interstate and Foreign Commerce the other day, and I think it is best that I read that short statement into your record, if you will permit me to do so. The CHAIRMAN. All right.

Colonel CHANTLAND. I am now quoting from Judge Healy's statement:

The method of investigation ought to be described. For the most part, trained accountants and examiners from Dr. Walker's division went into the offees of the utilities companies, sometimes with assistants, and stayed as long as was necessary to get the essential facts, and sometimes that was pretty long

The CHAIRMAN. Let me ask a question right here: Is it possible for all of you people sitting back there in the room to hear the witness! I am a little hard of hearing myself and I wondered if you people could hear.

Colonel CHANTLAND. I can speak louder if need be, Mr. Chairman.

The CHAIRMAN. Well, no one indicates that he is unable to hear you. You may proceed.

Colonel CHANTLAND. I was beginning to read what Judge Healy said in his testimony the other day before the House Committee on Interstate and Foreign Commerce. He said:

The method of investigation ought to be described. For the most part, Irained accountants and examiners from Dr. Walker's division went into the Pre of the utilities companies, sometimes with assistants, and stayed as long as was necessary to get the essential facts, and sometimes that was pretty lonz, but that was because the facts and circumstances were intricate and difficult to dig out. Then those men came back to the office of the Trade Comission and wrote their reports on individual companies.

Those reports were then submitted to the companies involved, who were in an opportunity to come to Dr. Walker and me and point out wherein the facts were misstated. If they convinced us that they were right, we made the appropriate changes. Otherwise we presented the report for public record as written.

Ar the public hearings the report would be presented, and the representatives of the power company had the opportunity to cross-examine the Trade Commission's witnesses and to put in evidence of their own that might tend to contradict or explain any of the statements made by the Commission's examiners. In almost no instance was there any cross-examination, and in almost no instance was any evidence presented by the companies in opposition to that presented by the Commission.

I might interpolate here that at times when I put in reports, before we left a point and not waiting until the end, I offered opportunity for them to put in things, at that point, so as to make it clear and in proper context.

Now, continuing, Judge Healy said—and, Senators, who have just come into the hearing room, I am giving the statement on procedure made by Judge Healy before the House Committee on Interstate and Foreign Commerce the other day, in relation to the Federal Trade Commission's investigation, how it was carried on, so that it may appear more clearly to you, and how we gathered proof, and I want to speak to the character of the proof this morning, that led up to this bill, S. 1725. Continuing, Judge Healy said:

Therefore, it seems to me that the facts and statements reported by the Trade Commission in its various reports to Congress—and there are a great many of them—are entitled to more than ordinary credence. And as to these reports, on yesterday we sent to the Senate the seventy-sixth report, and as to the financial structure it begins at report 21. Continuing, Judge Healy said the other day before the Committee on Interstate and Foreign Commerce of the House:

I do not regard those statements as issues of fact. I think that they are findings on issues of fact that have been raised and ought to be regarded as settled.

I shall endeavor to show you how the groundwork was laid by a long, extensive, and expensive campaign of propaganda-and I use the term “ propaganda” because they used it freely, knowing exactly what they were attempting and were doing. I say, I shall show how the public mind was “educated” to the utility viewpoint, to the point of accepting practically any so-called “ security”, by whatever name designated, as fundamentally sound and as being exactly what its name implied even though the facts were often far from that.

As to this propaganda campaign, the fact that the utilities spent, according to their own claims, as much as $28,000,000 per annum for advertising must not be overlooked. For as one of the spokesmen for the industry told me, when speaking of the influence of advertising, and he was a former president of the N. E. L. A.—and when I use that term, “N. E. L. A.", I mean the National Electric Light Association-he said to me personally when speaking of the influence of advertising and whether it had any:" Huh! They don't influence anybody, except all.” It would seem quite evident that the advertising money aided greatly in procuring the insertion of favorable articles, and particularly editorials, to carry forward the plan of the utilities.

In exhibit 2830, printed in exhibits parts 5–6, page 227, Mr. J. B. Sheridan, head of the Missouri Utilities Committee, makes a more concrete report. He there states that in 3 months he visited practically every privately owned public utility of any importance in Missouri and talked with 150 editors in those cities. Then he said:

1. Wherever the utilities advertise consistently, even to the extent of one tenth of 1 percent of their annual gross income, conditions are invariably satisfactory. The people seem to be satisfied, the newspapers are satisfied, and the utilities report satisfactory conditions.

2. In cities where the utilities, although they may be giving good service at a fair rate, do not advertise, we find conditions not so satisfactory as they are in the cities where the utilities advertise.

The CHAIRMAN. And that was in Missouri?

Colonel CHANTLAND. That was in the State of Missouri. Senator Truman, you know where it is, right south of Iowa, where I belong:

Senator Truman. When you refer to lowa, that is north of Missouri.

Colonel CHANTLAND. Yes; I believe that is correct. On February 15. 1928, the Senate passed what is generally referred to as “The Walsh Resolution” for the investigation of the electric and gas utilities, and more particularly utility holding companies. This was Senate Resolution 83, Seventieth Congress, first session

And I think, Mr. Chairman, it being quite short, it might be well to print that resolution in the record at this point.

The CHAIRMAN. I think so.
Colonel CHANTLAND. May it be done?
The CHAIRMAN. Yes.

(Senate Resolution 83, Seventieth Congress, first session, will here be printed in the record, as follows:)

[S. Res. No. 83, 70th Cong., 1st sess.) Resoired, That the Federal Trade Commission is hereby directed to inquire into and report to the Senate, by filing with the Secretary thereof, within each 30 days after the passage of this resolution and finally on the completion of the investigation (any such inquiry before the Commission to be open to the fruhlic and due notice of the time and place of all hearings to be given by the Commission, and the stenographic report of the evidence taken by the commission to accompany the partial and final reports) upon: (1) the growth of the capital assets and capital liabilities of public utility corporations doing an interstate or international business supplying either electrical energy in the form of power or light or both, however produced, or gas, natural or artificial, of corporations holding the stocks of two or more public utility corporations sperating in different States, and of nonpublic utility corporations owned or controlled by such holding companies; (2) the method of issuing, the price realized or value received, the commissions or bonuses paid or received, and other pertinent facts with respect to the various security issues of all classes of corporations herein named, including the bonds and other evidences of indebted. ness thereof, as well as the stocks of the same; (3) the extent to which such bolding companies or their stockholders control or are financially interested in btancial engineering, construction, and/or management corporations, and the relation, one to the other of the classes of corporations last named, the holding muitopanies, and the public utility corporations; (4) the services furnished to fach public utility corporations by such holding companies and/or their associated, affiliated, and/or subsidiary companies, the fees, commissions, bonuses or other charges made therefor, and the earnings and expenses of such holding enunjanies and their associated, affiliated, and/or subsidiary companies; and lvi the value or detriment to the public of such holding companies owning the stork or otherwise controlling such public utility corporations immediately oi remotely, with the extent of such ownership or control, and particularly wha. lezislation. If any, should be enacted by Congress to correct any abuses that Day erist in the organization or operation of such holding companies.

The Commission is further empowered to inquire and report whether, and to what extent, such corporations or any of the officers thereof or any one in tbeir behalf or in behalf of any organization of which any such corporation may live a member, through the expenditure of money or through the control of the IToutes of publicity, have made any and what effort to influence or control public opinion on account of municipal or public ownership of the means by whicb power is developed and electrical energy is generated and disturbed,

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