« ForrigeFortsett »
they are defined as utilities, prior to January 1, 1937, or to give up its industrial businesses such as the tar business, the creosoting business, the construction business, etc. Furthermore, section 12 (a) prohibits intercompany dealings within a utility holding company system, and dealings between any company in such system and any public utility company whether in or out of such system.
Under this provision, the coal companies in the Koppers group would be prohibited from selling coal to the coke plants in the group or to utility companies either in or out of the group. And the construction companies which have built a very large percentage of the gas holders and gas-making machinery in use in the country would be prohibited from building such machinery, not only for the three utilities within the Koppers group, but also for wholly independent utilities. Koppers industrial subsidiaries would also be subject to all the technical regulatory features of the bill, such as regulations for uniform accounting, etc., many of which are wholly inappropriate when applied to industrial companies.
III. EXEMPTING AMENDMENTS It is strongly urged that this group is fulfilling constructively a needed public service which benefits the consuming public without any of those abuses which have given rise to the suggested public-utility holding-company legislation. In fact, it is felt that the entire manufactured gas industry should be wholly exempted from the provisions of the bill. To this end a new section 2 (d) of title I might be added to the bill to read as follows:
“SEC. 2 (d). No provision of this title shall apply to or be deemed to include any holding company or any of its subsidiary companies if each of such subsidiary companies that is a public-utility company is a gas-utility company only and owns or operates facilities for the production, transportation, or distribution of manufactured gas only and is engaged only in business which is exclusively intrastate in character."
If, however, the entire manufactured-gas industry is not exempted, then those groups in the industry which are primarily industrial in character should be exempted by some such amendment as the following suggested new section 2 (d):
"Sec. 2 (d). No provision of this title shall apply to or be deemed to include any holding company or any of its subsidiary companies if the major portion of the consolidated gross income of such holding company and its subsidiary companies is derived from business other than that of public utility companies and if each of such subsidiary companies that is a public utility company is a gas utility company only and owns or operates facilities for the production, transportation or distribution of manufactured gas only and is engaged only in business which is exclusively intrastate in character."
IV. OTHER AMENDMENTS
If, however, it is the judgment of the Congress that because of the inclusion of a relatively small proportion of wholly intrastate manufactured-gas utilities within the group it should be subjected to some of the regulatory features of the bill, the following amendments are suggested as the minimum required to make it possible for such a system as the Koppers group to continue to exist as at present constituted:
1. Definition.—The definition of a gas utility company should be amended to prevent the inclusion within such definition of byproduct coke plants owned by commercial companies which do not sell gas to the public. The following amendment is suggested:
"Sec. 2(a)(4). "Gas utility company' means any company which owns or operates facilities for the production, transportation, or distribution of natural or manufactured gas, and which transports, distributes, sells or furnishes such gas to the public for light, heat, or power for a charge; but does not mean a company whose gas business is confined solely to the production, transportation, sale, or distribution of gas in inclosed portable containers.”
In the foregoing, as well as hereinafter, new matter suggested is shown by italic, while language the omission of which is suggested will be shown with a line drawn through it.
2. Industrial business.-Section 7 (a) prohibiting utility holding companies and their subsidiaries from engaging in business other than the utility business with certain exceptions should be amended to take care of industrial systems by some such amendment as the following:
"Sec. 7 (a). After January 1, 1937, it shall be unlawful for any registered holding company to have any interest, directly or indirectly, through the ownership or control of securities by such holding company or by any of its subsidiary
companies, or otherwise, in any business other than (1) the business of the proluction, generation, transportation, transmission, or distribution of gas and/or lectric energy, (2) any other business carried on by a public utility company xclusively in a State or States where the carrying on of such business by such ompany is expressly authorized by the State commission, and (3) such other business reasonably incidental to the foregoing as the Commission by rule, reguation, or order may permit as necessary or appropriate in the public interest or for the protection of investors or consumers and not in contravention of the provisions of this title; provided that this Section 7 (a) of this title shall not apply 0 or be deemed to include any holding company or any of its subsidiary companies f the major portion of the consolidated gross income of such holding company and its subsidiary companies is derived from business other than that of public utility companies and if the business of each of such subsidiary companies that are publicutility companies is exclusively intrastate in character."
3. Intercompany business and business with independent utilities. In order to permit coal companies in the Koppers group to continue to supply coal to its own coke plants and other similar intercompany transactions and in order to permit its construction companies to continue to build coke plants and other gas-making machinery and gas holders for wholly independent and nonaffiliated companies, section 12 (a) should be amended somewhat as follows:
"Sec. 12 (a). After January 1, 1936, it shall be unlawful for any registered holding company or subsidiary company thereof, by the use of the mails or any means or instrumentality of interstate commerce, or otherwise, to enter into or take any step in the performance of any service, sales or construction contract with any public utility company in the same holding company system or with any affiliate of a company in such holding company system or with any publie utility company in contravention of such rules and regulations or orders as the Commission may prescribe or issue as necessary or appropriate in the public interest or for the protection of investors or consumers or to prevent the circumvention of the provisions of this title or rules and regulations issued thereunder."
4. Elimination of holding companies.—We concur in the view of the electric utility holding companies that section 10 providing for their complete elimination should be itself eliminated from the bill However, if it should be the judgment of the Congress that section 10 should be retained substantially in its present form then the same privilege should be accorded to economically integrated industrial systems which have manufactured-gas utility companies integrated into their systems as is in the present draft extended to geographically and economically integrated utility holding-company systems.
These latter will be permitted to live under the terms of the existing section 10. The industrial holding-company systems could be extended the same privilege if the phrase on pages 37 and 38 stating a condition under which holding companies may continue in existence were amended to read: necessary or appropriate to the operations of a geographically and economically integrated public-utility system of an economically integrated industrial system".
5. Incidental regulations. The foregoing amendments are those which are vital if industrial groups such as the Koppers group are to continue to own and control their existing integrated subsidiary companies. However, there are many other features of the bill which would continue to affect such companies adversely and inappropriately, such as the provisions for uniform accounts, the provisions governing stock issues, acquisition of other properties, etc. In order to cure all of these points it would be necessary to go through the bill and insert the words "public utility” almost everywhere that the word “company” or “subsidiary company” occurs in the bill. Such amendments could perhaps be dispensed with if either of the above suggested new sections 2 (d) were adopted. Specific detailed amendments covering these points have been prepared and will be given to members of the committee if desired.
WASHINGTON, D. C., April 24, 1985. Hon. BURTON K. WHEELER, Chairman Senate Interstate Commerce Committee,
Washington, D. C. DEAR SENATOR WHEELER: From statements made relative to the hearings on S. 1725, I do not know whether or not others than the Government witnesses and the representatives of the power industry are to be given an opportunity of presenting their views on the bill.
With this uncertainty in view, I have prepared some comments and recommendations with my reasons therefor, and ask that they be incorporated in the record.
In presenting this dissertation on the subject, I wish to say that I am doing this as an independent engineer who is not now nor has ever been affiliated with any power group or holding company--my work has been largely as consultaat to other engineers and to financial groups.
I have had 35 years experience as an engineer who has specialized in power problems, and have seen the industry grow from almost nothing to a 12-biliondollar industry, and my comments are based on actual experience in this and 22 foreign countries. The Fusenko project in Korea, and the Dneiper River project in Russia are the only two large power developments in the world I have not studied in person. Even at that, the draft tubes in the Japanese Fusenko project were designed in accordance with my views on the subject.
Twelve years ago I was faced with the proposition of designing a hydroelectric project for British capital where the power site was 675 miles from the princijal market. Transmitting power 675 miles 12 years ago, did not cause me a minute's worry. In the 35 years engineering practice, I have seen the transmission of power steadily extended, and based on that and my plans for the transmission of power 675 miles, occasioned me to criticize any attempt to place a "geographical" limitation on power grouping, and to substitute "economically integrated” as a proper term.
As a matter of fact, I feel that in hearings such as your committee has buen holding, it is very important that the views of independent engineers should be considered. Yours very truly,
James E. Cassidy,
VODIFICATIONS RECOMMENDED FOR S. 1725 (HOLDING COMPANY BILL) Based on 35 years' experience as a professional engineer who has specialized in power problems, and whose experience has extended over some 22 countries of the world, the writer submits for the consideration of the Senate Interstate Commerce Committee certain comments and recommendations relative to the pending public utility holding company bill, S. 1725.
Before taking up the discussion, the writer desires to stat: that he has never been in the employ of any public-utility company affected by the proposed legislation, and for the past 15 years his work has been wholly as a consultant to financial agencies, and engineers and engineering concerns, on power matters, The comments and recommendations made herewith are his own individual ideas based on his long experience as a specialist in power problems, and also on a very complete study made of Government bureaus and departinents made while he was executive officer of the Corps of Engineers, United States Army.
1. The bill indicates an extravagant use of language, a large part of which is wholly unnecessary. If the language which is merely a repetition of existing laws was eliminated, the aim and intent of the bill could be covered in 30 to 40 pages instead of 140. Just why it is necessary to reiterate numerous detailed laws already in existence, is not apparent.
2. Generally speaking, title II of the bill seeks to patch up the Federal Water Power Act. The writer does not deny that the Federal Water Power Act needs patching, but the amending should not be done by grafting parts of it on another act. As a matter of fact, the Federal Water Power Act should be entirely rewritten as a whole, and omitted from the so-called "holding company bill."
3. As written, Senate 1725 is contradictory. Section 2 (c) calls for the destruction of the holding company at the end of 5 years from the passage of the act. After providing for the destruction, scores of pages of text have been written relative to the regulation of such companies. If section 2 (c) is to be written into law, then 135 pages of the bill can be eliminated, for all that would be necessary would be to recite the evils of the holding company and then provide for its destruction, which is accomplished by this section.
4. Section 2 (a) recites some of the "evils" of the holding company, and these generalities apply not only to the utility holding company, but to dozens of other industries of almost every class and kind. Can anyone say that the business of supplying food stuffs to the general public is of any less public interest than the business of generating electricity and selling it to the public? While it is convenient, useful, and very important in our everyday life, electric energy is not wholly essential, whereas the business of supplying food and clothing is essential. For this reason, it would appear that the greater public interest is to be found in zupplying meat, bread, coffee, and other foodstuffs, together with clothing, and therefore, such industries should be regimented and socialized before taking up a nonessential such as electricity. For several thousand years the human race got along without electricity, and could do so again, so it is no misnomer to class this industry as a nonessential is concerned.
5. Section 2 (b) deals largely with the matter of "evils” pertaining to the securities of holding companies. The author of the pending bill is evidently not familiar with the provisions of the Security Exchange Act, inasmuch as the greater part of the "evils” cited have been covered by that act.
6. Section 2 (b) (12) assumes that the growth of the holding companies (line 13 and 14) has been detrimental to investors, consumers, and the general public. Section 2 (b) (13) assumes that the holding company is “inherently injurious to investors, consumers, and the general public” (lines 19-20).
These statements are worth more than a passing scrutiny. There have been two or three instances, particularly the Foshay and Insull cases, where the investors have suffered, but there is no evidence on record to show that the collapse of these two companies affected the general public or the consumers.
Hundreds of thousands of investors in scores of industries other than the public utility business, have lost their investments, others have been deprived of interest on stocks, and bonds, and in general have seen the values of their securities drop far lower than the drop in utilities securities values.
In spite of the business depression of the past 5 years, most of the public utilities with which the pending legislation purports to deal, have paid the interest and dividends on their securities, quite regularly—any default being the exception rather than the rule.
If the regular payment of dividends on stocks, and interest on bonds is a detriment to the investor, then the holding or utility companies are guilty.
What then is the situation regarding the consumer? Long before the utility holding company as it exists today came into prominence, the trend of electric rates had been downward. This situation has continued under the holding company regime despite the depression existing for the past five years. If the general decrease in rate schedules can be classed as a detriment and injury to the consumer, then again the utility holding companies are guilty as charged.
That brings us to the third part of the triangle referred to—the general public. During the 35 years' professional career of the writer, the electric utility business has grown from a doubtful, uncertain, very limited service to a well-conducted, efficient service that is country wide. Rates are a fraction of the rates formerly charged for abominable service. If supplying a well-conducted, efficient light and power service is a detriment and injurious to the general public, then again the utility companies are guilty as charged.
A detailed study of the pending legislation relative to the power and light industry, not only as represented by s. 1725 and H. R. 5423, but numerous other bills, indicate quite clearly that the authors of such proposed legislation are imbued with the idea of the socialization of all industry, and the socialization of the electric utility business is but the first step toward the socialization of all industries in the country.
Destruction of the holding company is but the initial step toward the Government ownership and operation of the electric power industry.
Another thing that is painfully apparent in the draft of the pending bill is that the authors have no practical training or experience that would enable the drafting of equitable legislation.
DESTRUCTION OR REGULATION OF THE PUBLIC UTILITY
Before discussing the various phases of the pending bill, the writer desires to say that he does not contend that the utility holding companies are infallible and without "evils.” Testimony before the House Interstate and Foreign Commerce Committee by the officials of the companies themselves, show that there are practices, and methods, as well as matters of organization, which are not what they should be and for that reason changes are desirable and necessary.
Using the human body for comparison, it can be quite truthfully stated that headaches may be traced largely to two sources, accelerated heart action or stomach trouble. Obviously a sure and premanent cure for headache can be obtained by separating the head from the rest of the body, though the effects are disastrous.
It is unquestionably true that the public-utility business is afflicted with more or less of a headache, quite a bit of which is attributable to the holding company. The author of the pending bill recognized this situation as a fact, and proceeded to prescribe the removal of the head to effect a cure. This, of course, is destruction and dissolution which is a drastic move to say the least.
If the enactment of such drastic legislation did not affect more than a limited number of people, such as the officials and employees of the holding companies, the abolishment of the latter would be quite limited in effect, but as has been pointed out, especially under existing economical conditions, forced liquidation of such companies would destroy completely the investments of millions of people, largely of small or limited means. Regardless of how it came about, there is no question but what the securities structures of many of the utility holding companies are very complicated. While it is not the intention of the writer to discuss the set-up of individual companies, the complication of securities structures is exemplified by that of the Associated Gas & Electric Co., which has some 13 or 14 classes of stock in addition to other senior securities.
In the hearings before the House Foreign and Interstate Commerce Committee as well as the Senate Commerce Committee, numerous references have been made by Government representatives to the American Telephone & Telegraph as the largest holding company. Apparently, the people in question are not well enough informed on the subject to be qualified to discuss that company. The writer, at one time, was in charge of the building operations of that company for the entire United States and for that reason is quite familiar with the structure. The A. T. & T. Co. is a holding company, but in addition it is the largest operating company in the world. The parent company owns and operates something like 40,000,000 miles of long-distance wire lines, covering the long-distance phone service, leasedwire service to press and other public agencies doing a country-wide business. In brief, the American Telephone & Telegraph Co. has an investment in is operat. ing business alone of approximately $2,000,000,000. For these reasons, à comparison with purely holding companies is not equitable.
SUNDRY MODIFICATIONS OF s. 1725, RECOMMENDED Government witnesses have testified that their ideas were that the interstate electric utilities could not be regulated, and therefore they see could see no solution of existing conditions other than the destruction of the holding companies. This sort of argument is not sound, for while working out a means of regulation may have been too much for the authors of the bill, it does not mean that an equitable solution cannot be worked out without the deliberate destruction of the holding companies.
The modifications recommended are outlined, as follows:
(1) Providing for Federal regulation of interstate business, through Federal incorporation.
(2) Providing that within 5 years from the passage of the act, all holding companies shall be so organized as to come within the provisions of the act.
(3) Providing that the act shall apply to any and all companies, organizations, or agencies, engaged in interstate business, whether privately financed, or whether financed from State, municipal or Federal funds, that all intrastate business shall be subject to regulation by the State commissions regardless of the class or kind of agency performing such operations, and that the Federal control be probibited in strictly intrastate operations.
(4) Eliminate from the bill all references to penalties, etc., in connection with the use of mails in the distribution of securities. This is useless legislation as the postal laws which have long been in force cover this situation, and mere repetition adds nothing to the statutes.
(5) Eliminate the duplications of the bill now fully covered by the Secruities Exchange Act.
(6) Eliminate all of title II, adding the few features of value in it to the title I.
(7) Provide for an organization of holding companies which will dispense with interlocking directorates, management, and the service oompanies (unless their existence is fully established as necessary) and other controlled subsidiaries not engaged in operating activities.
Under item no. 1, as above, reference is made to the regulation of interstate business through the Federal incorporation of the companies in question. There are two methods by which Federal regulation may be handled, (1) by Federal incorporation, and (2) by Federal license. While opinions may differ, the writer's