Part 3: Financial Structure and Methods

Chapter 8: The Fight to Get the Facts
Chapter 9: Corporation Finance
Chapter 10: Intercorporate Relations
Chapter 11: Mergers
Chapter 12: The Holding Company
Chapter 13: The Holding Company
Chapter 14: Subsidiaries of the Holding Companies

Part 3: Financial Structure and Methods

Chapter 8: The Fight to Get the Facts

How the Utilities Resisted and Blocked the Investigation

 The most vital, interesting, and challenging revelations of all in the findings of the Federal Trade Commission have to do with the financial structure, methods, and operations of the utility corporations. The facts in this field were the most difficult of all to secure. They constituted the “trade secrets” of the greatest organization in the utility field that has ever existed, and these secrets were concealed and guarded by the companies with the utmost care and determination.

In spite of the fact that when the proposal was first made for an official investigation of the utility corporations and their methods, the leaders of the industry loudly professed that they had no objection whatever to a legitimate investigation, that they had nothing whatever to hide, and that they would gladly welcome such an investigation and would co-operate in carrying it on, the evidence before the Commission reveals the fact that again and again the only way by which the Commission could get the facts was by actually forcing out the truth.

The Inquiry Blocked

When the investigation by the Commission reached the point where these matters of financial methods were being inquired into the witnesses became suddenly reticent and evasive and finally positively and persistently refused to answer the questions put to them. And when the matters were pressed it was found that the witnesses were being coached and that expert and clever attorneys were at their elbows warning them and the Commission that they would not permit the questions to be answered. In spite of the fact that the Commission represented a duly authorized body of the Federal Government with power to subpoena witnesses, documents, and evidence, the utility corporations and their attorneys defiantly, definitely, and persistently blocked the investigation at this point.

So persistent were these objections that the Commission was finally compelled to take the matter into court before it could force the facts from the reluctant witnesses of the utility corporations. It was months before the decision of the court in this case was reached which compelled the companies to give up their evidence, which enabled the Commission to proceed with the investigation of these matters.

“We Object, Your Honor!”

 When the Commission met on October 17, 1928, there appeared before it Mr. J. F. MacLane on behalf of the Electric Bond and Share Company, requesting the privilege of making a formal statement regarding the position to be taken by the witnesses which the Commission had summoned and was about to examine. [Pt. 8, p. 1.] Mr. MacLane in his formal statement referred to the fact that the Commission had asked the Electric Bond and Share Company to cooperate with the Commission in securing certain evidence based upon the records, books, accounts, etc., of the company, and objected in behalf of the company to a “disclosure in detail of its private business and professional undertakings for its clients which are competitive in their nature and would involve the disclosure of costs, employments, and transactions wholly private and confidential and not relevant to the subject of the inquiry.” [Pt. 8, p. 2.] Later he objected to the administration of the oath or to the interrogation of the witness, setting forth at length the basis of this objection.

From that time on, as the examination proceeded, whenever the questions asked of the witness referred to any vital or important matter, Mr. MacLane, the attorney, would interpose an objection and prevent the witness from answering.

For example, judge Healy was trying to get at some of the records and was asking the witness, Mr. A. E. Smith, about certain accounts on the books. At that point Mr. MacLane, the attorney for the Electric Bond and Share Company interposed as follows:

“Mr. MacLane: Just a moment, please. I think, Judge Healy, that I am obliged, in order to protect the record, to advise the witness that he is not required to answer with respect to the contents of the books.”
[Idem, p. 12.]

The objection was overruled. Then Mr. MacLane again interposed, saying: “I have given the witness certain advice which he may follow or not.” The witness declined to answer.

“On Advice of Counsel I Decline to Answer”

 And then followed a long session in which over and over again the witness answered: “I must decline to answer.” When asked on what ground, he invariably replied: “On advice of counsel.” And, of course, the counsel sat right at his elbow, persistently and repeatedly warning him that he should not and was not required to answer.

Judge Healy asked the witness if he could in a general way give the things that are recorded in the ledgers of the company. Mr. MacLane interposed, saying: “I shall advise the witness that he is not required to answer the question.” Thereupon the witness replied: “I decline to answer, on the advice of counsel.”

Records Also Refused

Later the witness was asked if he would produce certain books of the company so that “this Commission may see whether there has been any payment to influence public opinion or the avenues of publicity, or to control the avenues of publicity in the matter of public or municipal ownership of utilities.”

To this Mr. MacLane, the attorney for the Electric Bond and Share Company, interposed, saying: “I feel that in fairness to the company I should state an objection to the question in the form in which it is asked, because the witness has not been asked to produce these particular payments, if any, but has been asked to produce the entire book. I shall advise the witness under the form of subpoena, directed to him, that he is not required to answer the question.” [Pt. 8, p. 14.]

Again the objection was overruled and again the witness refused to produce the books.

Finally Judge Healy asked the witness if he would permit the Commission to look at the books for the purpose of discovering whether certain payments were made. And to this the witness replied: “I must refuse to answer on the advice of counsel.” [Idem, pp. 17-18.]

Later Mr. Ralph B. Feagin was called to testify. Again Mr. MacLane, attorney for the Electric Bond and Share Company, interposed, saying: “Your honor, before Mr. Feagin is sworn, I desire that the record show that we renew at this time the objections made to the swearing of the witness Smith: we renew them as to the witness Feagin, and that the company makes the same objections to the swearing and interrogation of this witness that it made to the swearing and interrogation of the witness Mr. Smith.” [Pt. 8, p. 20.]

Again the objection was overruled, but again the witness refused to answer.

Again Judge Healy asked of this witness to produce in the hearing room vouchers showing the disbursement of money expended to influence or control public opinion on account of municipal or public ownership of means by which power is developed, etc.

And here again Mr. MacLane interposed with the same objection and advised the witness that he was not required to answer. And so the evidence goes on, page after page, the witness declining and refusing to answer the questions propounded to him and refusing to do so on advice of counsel.

Defying the Jurisdiction of the Commission

 Finally Commissioner McCulloch entered a protest, saying:

“Now, it seems to be very clear to my mind that the information sought today comes squarely not only within the Senate Resolution but also within the power expressly conferred by Congress upon this Commission…. I think that if we have not the power and jurisdiction to inquire into these matters, this statute to which I have referred and the Senate resolution are just pieces of waste paper and nothing more. We want it understood that this requirement for the production of information and documents is made not only pursuant to the Senate resolution, but pursuant to the powers of the Commission as conferred not alone by resolution but by statute. . . .

“It is very clear to my mind, and I can draw only the one assumption that the Electric Bond and Share Company has only been willing to share in this investigation or cooperate in this investigation to the extent that it suits its own officers and that it is unwilling to submit itself to the jurisdiction of the commission. [In this as in all cases throughout the present volume where italics are used in quoting from the text of the Commission’s hearings the italics are ours.] In other words, I can only indulge in the presumption that they are defying the jurisdiction of the Commission or that they have something that they are unwilling to let the United States Senate know about and to let the people of the country know about….

Witnesses have refused to comply with the demands of the Commission and if there is any way under the law to compel the Electric Bond and Share Company and its associated and affiliated companies to comply with those demands and permit this investigation to be made, the Commission will make use of whatever methods the law affords to compel them to do so.” [Pt. 8, pp. 34-35.]

Forced by Court Procedure to Give Up the Facts

 As a result of this refusal on the part of the witnesses and representatives of the Electric Bond and Share Company to testify, as stated, the Federal Trade Commission was compelled to take the matter into the United States District Court. The courts held for the Commission and thus compelled the Electric Bond and Share Company and its witnesses to testify. And thus only by court procedure was the Commission finally able to force out the truth from these unwilling witnesses.

Other Difficulties of the Investigation

 In the investigations of the utility companies the Commission has encountered other difficulties and obstacles. We have referred above to the absolute and persistent refusal of the representatives of the utility companies to testify or to submit the records of their companies. Numerous other instances of refusal of witnesses to testify are found in the hearings.

Another difficulty that the Commission encountered frequently was the fact that, for one reason or another, important records were “lost, strayed, or stolen.” In one case, for example, that of the Oklahoma Gas and Electric Company, which was reorganized in 1902, the capital stock was increased from $300,000 to $1,000,000, but the accountants of the Commission could not tell definitely whether this was a “write up” or not because, as they testified, the “records had been lost.” [Pt. 3, p. 543.]

In the investigation of the affairs of the Electric Bond and Share Company, accordingto the investigators of the Commission, important records were withheld or refused.

Many other similar instances are reported.

What the Investigation Revealed

 In view of what the investigation has finally revealed it is not surprising that the companies have so carefully guarded these matters and resisted with such determination and persistence having them made public.

The difficulties encountered by the Commission in getting at the real facts regarding these financial matters of the utility corporations will explain why no private research or investigation, however disinterested or thoroughgoing, could have discovered and disclosed these important matters. Nothing but an arm of the Federal Government, backed by its full authority and power, was sufficient to accomplish this work.

Strangely enough, these disclosures with reference to the financial methods of the utilities, constituting as they do by far the most essential of all of the revelations, have been given little or no publicity in the press. Nor, so far as we know, have any of the , articles, pamphlets, or books that have so far been published upon the hearings of the Commission given this particular phase of the subject any adequate discussion or presentation.

Out of an interminable mass of evidence covering hundreds of pages of testimony and many volumes of the published hearings, the following essential facts have been revealed and established:

I. A tremendous inflation of the capital accounts practically universal. These inflations, as we shall show from the evidence submitted in the hearings, range from a few millions of dollars in the smaller companies to many hundreds of millions of dollars in some of the larger ones. And, as the evidence to be presented will further show, this practice of inflation is practically universal throughout the entire field of utility corporations.

II. Enormous earnings on actual capital invested, these excessive earnings being very cleverly concealed from the public, the Commissions and the courts by means of the inflations above referred to. These earnings which, upon the inflated values showed at from 5 to 6 and 8 per cent, were, when reckoned upon actual investment, as high as 40 per cent, 6o per cent, 6oo per cent, and even higher in extreme cases, as we shall show by quotations and references from the hearings later on.

III. The involving of most of the big financial interests of the country, including banks, insurance companies, railroads, etc., and a considerable proportion of the general public (in customer ownership schemes) through the lure of excessive earnings based on the above mentioned methods.

IV. A swiftly accelerating concentration, both of the earnings and the ownership and control of the utility corporations through a wide application and use of the device of the modern holding company. The methods of operation of this device constitutes one of the most clever and effective of those in use in the modern field of finance.

V. The acceleration of the general concentration of wealth and power in the hands of the few through and by means of a combination of the above methods of financial structure, operation and control.

We shall endeavor in the following chapters to present a summary of the revelations of the Federal Trade Commission with reference to each of these above mentioned matters.

Chapter 9: Corporation
Finance

The Concealed Weapons of Corporate Power

 The financial structure of the utility corporation is considerably complicated. And the complications tend to facilitate the concentration of control and of earnings as well.

Control by Direct Ownership

 The first thing to be noted and emphasized in regard to the control of utility corporations is the fact that control of the companies lies in the voting stock and that those who buy preferred stock, bonds, and other types of securities do not, except in rare instances and under unusual conditions, have any voting power
at all and, therefore, no voice or control in the management. Thus at the very outset and by the very nature of the financial structure of the utility corporation, control is concentrated in the hands of those who own the common or the voting stock.

As stated above, the investigations of the Federal Trade Commission have not disclosed the concentration of direct ownership in the utility field to such an extent as to give any single company or group a dominating control by this particular means. And yet the investigation has shown that some of the utility companies have concentrated their direct ownership of voting stock in many of these companies to such an extent that they hold a very considerable proportion of control.

A Minority Ownership Often Controls

 And it is important to note that the evidence presented brings out the fact that it is by no means always necessary that there should be an ownership of the majority of voting stock in order to control an organization. For example, the Electric Bond and Share Company owned only 16.70 per cent of the total shares of the Electric Power and Light Corporation and yet very effectively controlled the latter company. [Pts. 23 & 24, pp. 334-36.]

Thus by direct ownership of the voting stock in the various utility corporations, the more powerful and dominating influences already exercise a very extensive and concentrated control. But, as indicated above, the control by this method is not as yet sufficiently complete or extensive to make any one group completely dominant or to bring about a completely centralized control. Other forces are operating in that direction.

The Operating Company

 The financial structure of the underlying operating company is comparatively simple. It consists of the usual different types of securities, viz., common stock, preferred stock, and bonds. Of course, there are numerous varieties of these three different types of securities. There are “Class A Common” stock and “Class B Common”; then there are “prior preferred” and “second preferred,” “participating preferred,” and other classes of various designations and denominations. Then there are “option warrants” which may need a special word of explanation; and, of course, various types of bonds-just ordinary bonds; then “collateral trust bonds” and others. Occasionally we find use of “scrip,” [Pt. 27, p. 387.] “gold coupon notes,” [Idem, p. 415.] and other variations. [Sen. Doc. No. 213, pp. 192, 257.] However, roughly speaking, the securities may be said to consist of the three classes mentioned above, viz., (1) common stock, (2) preferred stock, and (3) bonds.

As explained above, the important matter to emphasize in connection with the financial structure of the operating companies and, for that matter, of all the various forms of financial structures of the utilities is that only one form or class of securities, with but few exceptions, have voting rights. This is generally the common stock. The other securities: the preferred and the bonds of whatever kinds: have no voting rights, as a rule, and, therefore, have no part in the management or control of the organization.

Where Concentration Begins

 Now, as explained in the earlier report of the Federal Trade Commission,’ the return on preferred stock is usually limited to 6 or at most 7 per cent, while bonds draw only a specified rate, usually not more than 6 per cent. Meanwhile, courts and commissions allow the operating companies to earn 8 per cent on their total investment. This leaves a margin of excess earning above that required to pay the interest and dividends to the preferred stock and bond holders, and this goes to the holders of the common stock, which increases their rate of return above the usual 6 per cent and often above the 8 per cent allowed by the courts and commissions. It may go up to 15 per cent, according to the illustration used in the Federal Trade Commission report.

Thus at the very foundation of the financial structure of the utilities companies we have in the usual form of corporate organization in the underlying operating companies the basis upon which the concentration of ownership and control rests. Upon this basis and growing out of it rises the financial superstructure which at each step accelerates the processes of concentration.

Intercompany Relations

 Next to the usual financial methods of the underlying operating company in its concentrating force and influence are the intercompany relationships. These phases of the process are explained at great length and extended detail in the evidence. They are developed in connection with practically every company examined.

Chief among these intercompany relations is the well known practice of interlocking directorates. By this means the directors. of one company may be at the same time directors in several other companies and thus, although the companies may be ostensibly independent, they are practically under the same control, or largely so. Intercompany relationship is also made effective through the ownership of the voting stock in one company by the officers and stockholders of another. And this feature of the financial methods of the companies is very extensively developed throughout the evidence. [See section on “Intercorporate Relations” in each important company.] Our next chapter will deal further with this feature of the financial structure of the utility companies.

Besides the various methods and processes of interrelation and integration mentioned above, we find disclosed in the evidence other devices and practices that tend to concentrate the financial control and advantages, such as the voting trust, the purchase and resale of securities of one company in another, loans of one company to another, service contracts of various kinds, reorganizations, mergers, and consolidations-all of which affect the financial structure of the companies in one way or another.

Mergers and Consolidations

 Another very important feature in the financial set up, methods, and operations of the utility companies is the merger or consolidation movement. Individual operating companies find it to their advantage to combine or merge their interests. Larger and more powerful companies seek to and do absorb lesser companies, thus increasing their control and influence. And, finally, even the holding companies merge and combine. This process, according to the evidence, has been going on with such rapidity that during the five years from 1925 to 1929 inclusive there was a total of 3,895 combinations, including the absorption of municipal plants, the merging of operating companies and of holding companies, extending even into the international field. This matter of the merger and combination in the utility field is of such significance and importance that we shall devote an entire chapter to the subject. [pp. 80 ff.]

The Holding Company

 But by far the most powerful and far-reaching force in the financial structure of the modern utility organization is the holding company. As an agency for increased economy and efficiency, but more especially as the most powerful force for the integration of organization and the concentration of control and of earnings, the holding company is the keystone and culmination of the financial structure of the utilities organization. It is of such vital importance and significance that we shall devote an entire chapter to the subject. [pp. 84 ff.]

Chapter
10: Intercorporate Relations

How the Companies Are Inter-tied

 The concentration of control in the utility field, as previously pointed out, is brought about in a number of different ways. There is a certain degree of concentration of control in the very financial structure of the utility companies themselves, by which the control for the most part is vested in the owners of the common stock. Other and more effective means of concentrating control, such as the merger, the holding company, etc., will be discussed later. In the present chapter we consider the intercompany or intercorporate relationship in the utility organizations. Here is another very effective means by which the concentration of control is effected.

This intercompany or intercorporate relation takes on various forms. One of the economists of the Commission, Mr. William B. Horne, was asked:

“How many methods of control does a holding company have over its subsidiaries?”

In reply, he said:

“Four, as follows: (1) Through stock ownership; (2) through control of directors; (3) through control of officers; (4) through management and supervision service.” [Pt. 22, p. 56.]

There are more, as we shall see.

Interlocking Directorates

 As we have noted in the preceding chapter, one of the very common practices in the utility field by which the control of various companies is concentrated into the hands of a few is by means of interlocking directorates-that is by managing to have some or all of the directors of one company at the same time directors of a number of other companies. In the examination of this phase of the subject the present or later work of the Federal Trade Commission has been quite diligent in studying out and publishing in chart form and otherwise the facts as to the interlocking directorates of these various companies.

For example, a very striking instance of the way the Electric Bond and Share Company worked its directors into control of the Electric Power and Light Corporation is set forth in Parts 23 and 24, pages 323 to 325. The first board of this company held office for only one day. A new board was then elected, consisting of five men, of which the Secretary and Treasurer resigned, and the Secretary and Treasurer of the Electric Bond and Share Company were elected in their places. By this election the Electric Bond and Share Company secured control of the Board of Directors. Then on June 29, 1925, the number of the board was increased from five to fifteen, and of the ten new members added, eight were Electric Bond and Share men. Then on September 8, 1925, three of the old directors resigned and Electric Bond and Share men took their places. So that finally the Electric Bond and Share Company had all of the members of the Board of Directors of the Electric Power and Light Corporation.

A characteristic example of the way these directorates are interlocked is shown in the case of Sidney Z. Mitchell of the Board of Directors of the Electric Bond and Share Company. Mr. Mitchell was also chairman of the Board of Directors of the American Power and Light Company, the Electric Power and Light Corporation, and the National Power and Light Company. He was also director of seven subsidiaries of the American Power and Light Company; also a director of two subsidiaries of the Electric Power and Light Corporation, and two of the National Power and Light Company; a director of the Montana Power Company and one of its subsidiaries, of the American Gas and Electric Company, of the Southeastern Power and Light Company and two of its subsidiaries, and of one company in the miscellaneous group. A total of twenty-two companies, seven of these being outside of the Electric Bond and Share group. [Pts. 23 & 24, p. 436.]

Similarly, C. E. Groesbeck, Vice-President of the Electric Bond and Share Company, was a director in 31 companies, which was the largest number of directorships held by any director of the Electric Bond and Share Company. He was a director of the three principal holding companies in the Electric Bond and Share group, of six subsidiaries of the American Power and Light Company, five of the Electric Power and Light Corporation, thirteen of the National Power and Light Company, of the American Gas and Electric Company, and of the Southeastern Power and Light Company and one of its subsidiaries. [Pts. 23 & 24, p. 436.] These are but typical instances of the interlocking of directorates which are set forth in great detail with reference to many of the larger and more important corporations throughout the reports of the Commission.

Of more than 300 persons who held directorships in one or more companies in the Electric Bond and Share Company, 33 held directorships in other companies. [Idem..] The officers and directors of the Electric Bond and Share Company held exactly one-third of the directorships and all offices in the American Power and Light Company. They held the same proportion of directorships in the Electric Power and Light Corporation and all the offices except one vice-presidency. They also held two-fifths of the directorships and all of the offices, except one, in. the National Power and Light Company. [Idem, p. 440.] The officers of the Electric Bond and Share Company held 50 cent or more of the offices in 20 subsidiary companies, and in five others have lacked only one of holding this proportion. In addition to the foregoing, one of the officers, P. B. Sawyer, held at one time an office in 26 other companies in this group. [Pts. 23 & 24, p. 441.]

A striking example of the control by a holding company of its subsidiaries is shown in the case of the American Gas and Electric Company, which exercised absolute control of almost every one of its subsidiaries through their directors and officers, who are also officers of the American Gas and Electric Company. With four exceptions, a majority of the directors of each of these companies, on March 1, 1928, were officers of the American Gas and Electric Company, all of whom, ten in number, resided in the environs of New York City and were employed in the New York office of the American Gas and Electric Company. [Pt. 23, p. 724.] George N. Tidd, for example, director in the American Gas and Electric Company, was a director also in 14, president of 13, and vice-president of other companies.

In this connection it is interesting to note that this same principle of control through interlocking directorates which applies so effectively in the utility field is extended so that these men who were directors in so many different utility companies were also directors in a great many non-utility companies. Thus the control of the utility companies extends beyond the field of utilities into various other fields.

Sidney Z. Mitchell, for example, according to the testimony, was a director in the Irving Trust Company, the Postal Telegraph and Cable Company, and the Securities Corporation General. [Pts. 23 & 24, p. 735.]

Lewis E. Pierson, Director of the Electric Bond and Share Company, was also director in the Chamber of Commerce of the United States, of the Merchants Refrigerating Company, of the Merchants Association of New York, and of the National Foreign Trade Council.

Mr. William C. Potter was a director in the American Rubber Producers, Inc., the Atchison, Topeka & Santa Fe Railway Company, the Bethlehem Steel Corporation, the Chicago & Eastern Illinois Railway Company, the Continental Gin Company, the Continental Rubber Company, the Gasoline Products Company, and many others.

Frederick Strauss was a director in the Central Union Trust Company of New York, the Cuba Cane Sugar Corporation, trustee of the Rockefeller Foundation, and many others.

Edward Kimball Hall, Director of the Electric Bond and Share Company, was Vice-President of the American Telegraph and Telephone Company, a director in the Bell Telephone Securities Company, and others.

And so on page after page in the records of the Commission proceedings. [Pts. 23 & 24, pp. 735-742.]

Directors and officers of the various utility corporations were directors and officers in such various non-utility corporations as Bradstreet Realty Company, Diamond Watch Company, Adams Express Company, Allis-Chalmers Manufacturing Company, Chicago, Rock Island & Pacific Railroad, Cuba Cane Sugar Corporation, Mesabai Iron Company, New York Rapid Transit Company, Bristol Paper Company, National City Bank, North American Cement Corporation, Piggly Wiggly Corporation, Tulane University, Monroe Water Supply Company, Wilkes-Barre and Scranton Railway Company, Penn Mutual Life Insurance Company, etc., etc. [Idem, pp. 743-749.]

Control by Common Ownership of Stock

 Another form of intercorporate relationship through which control is concentrated is by means of the common ownership of stock. The stockholders of one company,. which may exercise control over many subsidiaries, may at the same time hold a sufficient number of stocks in still other subsidiaries or companies so that they may exercise control over both.

For example, 27 per cent of the voting stock of the American Gas and Electric Company was held by the ten largest stockholders. Included in this list of the ten largest stockholders were stockholders of the Electric Bond and Share Company, holding between 14 and 16 per cent of the stock in that company.

Another instance of the common ownership of stock is that of the Electric Bond and Share Company, which in 1928 held almost 14 per cent of the stock of the American Power and Light Company, 13 per cent of the Electric Power and Light Corporation, almost 30 per cent of the National Power and Light Company, 9 per cent of the Southeastern Power and Light Company, and 8 per cent of the American Gas and Electric Company. At the same time S. Z. Mitchell, a director of the Electric Bond and Share Company, held about 6 per cent of the stock in the American Power and Light Company and the American Gas and Electric Company each, while the combined holdings of this group for the American Power and Light Company was 23 per cent; for the Electric Power and Light Corporation, i9 per cent; for the National Power and Light Company, 40 per cent; and for the American Gas and Electric Company 25 per cent. [Pts. 23 & 24, p. 33.]

Similar intercorporate relationship and control existed quite generally between the various holding companies and their subsidiaries and often between holding companies and operating companies that were outside of the group.

In 1928 the American Gas and Electric Company held $48,000,000 of common stock in the Electric Bond and Share Company. [Pt. 22, p. 490.] At the same time the American Gas and Electric Company owned $50,000,000 of common stock in the Appalachian Electric Power Company.

The Voting Trust

 Another very clever method by which a few are able to exercise control over a corporation, or by which a holding company may exercise control over a subsidiary without owning or controlling a majority of the stock is by means of the so-called voting trust. The way this operates is illustrated by the testimony in the hearing before the Commission regarding the Utah Securities Corporation controlled by the Electric Bond and Share Company. It was shown that the Electric Bond and Share Company did not retain a majority of the capital shares of the Utah Securities Corporation and still it controlled that corporation. The testimony reads as follows:

“It was not necessary for Electric Bond and Share Company to retain a majority of the stock to keep control of the company, as the plan of organization of the Utah Securities Corporation provided, among other things, that-the stock of the Utah Securities Corporation may be deposited under a voting trust agreement (the duration of which voting trust and the provisions of such agreement to be determined by Electric Bond and Share Company), and in such event voting trust certificates will be issued in lieu of stock of Utah Securities Corporation to which subscribers are entitled.” [Pts. 23 & 24, p. 327. See also pp. 1192-93.]

By this device of the voting trust those individuals and corporations that hold their voting stock often place them in the hands of the voting trust, thus resigning to them whatever element of control they had in the stocks which they owned. And, according to the evidence, this device of the voting trust was used very commonly in the utility field as a means by which holding companies kept control of subsidiary and other organizations. Details may be found in Exhibit No. r within the Commission’s Exhibit No. 3995, where the text of the voting trust agreement of the Southeastern Power and Light Company is given in full.

In the case of the Insull interests, the voting trust of at least one of the top companies is in the hands of three men. By this device, which is frequently used, the control of the companies is still further concentrated. [Pt. 22, p. 54; see also Pt. 27, pp. 164-68.]

Proxy Voting

 Another means by which the control of the utility corporations is exercised by a few, as is well known, is by the use of proxy voting. The records show that in some cases, notably in that of the Utah Power and Light Company, all of the shares of stock, including both preferred and second preferred, that held any voting power, were held and voted by one man who held the proxies of all the other voting shares. The records show that the members of one firm voted all the proxies at every meeting of the Electric Power and Light Company and of the Utah Power and Light Company except one or two.

Thus it often happened that very few stockholders, and sometimes none, attended the meetings, and the votes were cast by those who held proxies. [Pts. 23 & 24, p. 1159.]

When the Electric Bond and Share Company was organized, the General Electric Company took the entire issue of stock, both common and preferred, and voted by proxy at each of the first four meetings. With two exceptions they voted more than 65 per cent of the total stock voted at these meetings. In some cases they voted more than 99 per cent. [Idem, p. 35.]

The Electric Bond and Share Company exercised this control over the American Power and Light Company and the Pacific Power and Light Company from the time of their organization down to May, 1928. One firm of lawyers, located in Augusta, Maine, voted as proxy holders all the stock present at every meeting held by the stockholders of these two companies during that period. [Pts. 23 & 24, p. 812.] In some cases control was exercised by a holding company through this device of interlocking directorates over companies that were entirely outside of their group. Nine companies were in this way controlled by the Electric Bond and Share groups. [Idem, p. 187.]

Controlling Issue of Stock

 Another method by which the companies keep control in their own hands is by a very clever provision in the charters and by-laws of the company “whereby the directors may retire such of the preferred shares as they may select and whereby the directors may decide what of the authorized stock shall be issued, and at what price, and to whom.” (Italics ours.) [Pts. 23 & 24, p. 333.]

The purpose of this provision is clear, for, as judge Healy queried in the hearing, “If an effort were made by some outside interests to acquire control of the corporation, it might be possible for the Electric Bond and Share Company to get the board of the Electric Power and Light Corporation to issue more stock and give it the right to buy it.” [Idem.]

These provisions of the by-laws of this company are described in the record as follows:

“Due to the provisions of the by-laws, the board of directors of the Electric Power and Light Corporation, for example, is actually in control of the corporation. The Electric Bond and Share Company has continually controlled the board of directors since organization. Should there be an effort made by some outside interest to acquire control of the corporation, the board of directors could issue all the remaining authorized common stock to the Electric Bond and Share Company. The quantity authorized but not issued would be sufficient, taken with the present holdings of the Electric Bond and Share Company, including its option warrants, to give that company over 30 per cent of the total. (Our italics.) Furthermore, persons directly associated with the company as officers, directors, and employees, would raise this proportion to over 45 per cent. There can be no reasonable doubt, therefore, in view of the wide distribution of the stock and the absence of any other large holders that it would be practically impossible to wrest the control of the Electric Power and Light Corporation from the Electric Bond and Share Company. (Our italics.) [Pts. 23 & 24, p. 1192.]

Stock Trading

 Another rather subtle but very effective means of concentrating control is through the conversion of voting stock that may be in the hands of outsiders into non-voting stock. By this means outsiders or those who may be unfriendly to the controlling group may be persuaded to trade their voting stock for non-voting stock. In order to make such a trade seem attractive, two or more shares of preferred or non-voting stock may be offered to the holders of the common or voting stock in return for one of their shares. In this way the control of the affairs of a company may be kept in the hands of an inside group and thus the control concentrated.

In the case of the Foshay Company, with headquarters in Minneapolis, for example, two shares of preferred stock were traded for one share of common stock. This was done to retire as much as possible of the common stock not held by the officers, so that the officers would have control of the voting stock of the company. Through this method about $100,000 in common stock was retired in 1926. And the purpose of this action was clearly .and definitely avowed in the annual meeting of the stockholders of the company held in March, 1926. At that meeting a resolution was adopted stating “that it is for the best interests of the company that as early as possible 100 per cent of the common stock of the company be owned by the officers of the company in order to insure their control and management of the affairs of the company.” [Pt. 25, pp. 46-47.]

Again in the case of the Washington Water Power Company the preferred share holders were persuaded to surrender their voting rights by this same method of trading their voting shares for preferred non-voting shares. This concentration of control was obtained by amending the articles of incorporation whereby certain of the common stock was converted into non-voting stock. As a result all but 40 shareholders had surrendered their voting rights by accepting in return for their voting stock non-voting preferred stock. In this way the American Power and Light Company acquired over 99 per cent control of the voting stock [Pt. 29, p. 96.]

Control Through the Issuance of “Option Warrants”

 Another subtlety by which the companies may concentrate control in their own hands is the manipulation of “option warrants.” For example, the Electric Bond and Share Company at one time issued 800,000 “option warrants,” giving the holder of each warrant the right to purchase one share of common stock for $25. The company distributed a portion of these warrants among their employees and other friendly interests and retained approximately 47 per cent for itself. By this arrangement it became possible, if at any time there should be any danger of the Electric Bond and Share Company losing its control, for the company to arrange with these holders of “option warrants” to exchange them, as they were permitted to do, for shares of common or voting stock. In other words, by this device an arrangement was made by which, if necessary, the company could at -any time insure its complete control by the shift of “option warrants” to common or voting stock.

Furthermore, persons holding these warrants, instead of paying cash for the stock that they had the right to buy under the warrants, were allowed to turn in second preferred stock at $100 per share in payment for the common stock [Pts. 23 & 24, p. 341.]

Thus by one or the other of these various means and methods, or by a combination of a number of them, the utility corporations and the inside controlling officers and interests are able to concentrate and hold within their own hands the control of the organizations. By these means, as well as by others mentioned in other chapters, the concentration of the control of the utility corporations goes on.

Thus it will be seen that through various forms of inter-corporate relation the control exercised over the utility companies is very complicated, but that each complication indicates a trend and tendency towards the concentration of control in an ever-diminishing number of holding companies, and of directorates within the holding companies, and in the hands of individuals within the directorates of the holding companies.

Chapter 11: Mergers

“A Record Trend in Centralized Management”

 Perhaps the most definite and potent influence in the concentration of control in the utility field in recent years is the merger. With amazing rapidity and operating in every section of the country and in every part of the field, mergers, combinations, and consolidations have gone forward with terrific speed. And this is particularly true of the period covered by the records of the Federal Trade Commission for the years 1925 to 1929.

Four Years of Rapid Concentration

 The records of the Federal Trade Commission with reference to mergers are very complete covering the five years from 1925 to 1929, inclusive. During that period there are recorded a total of 3,895 mergers. Of these, 2,851 were in the general field, 698 represented the acquisition by the private companies of municipally owned utilities, 228 were mergers of holding companies, and 118 were mergers of foreign companies.

We present below a table which has been compiled from various volumes of the hearings, as indicated in the foot notes. This table shows at a glance this process of merger consolidation and combination that went on during the period covered.

Mergers: 1925-1929, Inclusive.

       Holding  Cos.     Muni.     Gen.   Foreign.     Total.

1925                                        407                       407 (1) [Exh. Pt. 3, p. 25.]
1926                          201        821                    1,022 (2) [Idem, p. 38.]
1927            52          181        564       31            828 (3) [Exh. Pt. 3, p. 64.]
1928            87          162        464       17            730 (4) [Exh. Pts. 10-16, p. 346.]
1929            89          154        595       70            908 (5) [Exh. Pt. 3, p. 25.]

___          ___     _____   ____        _____
228          698     2,851     118          3,895

Breaking the Record

 In Exhibit No. 744 [Exh. Pt. 3, p. 25.] of the Commission’s records is quoted an article on power and utility company mergers for 1925 from the Electrical World of January 2, 1926. According to this article, some 560 companies were involved in merger movements for that year. The capitalization of the 407 acquired companies, according to the Electrical World article, totaled approximately $1,957,263,000, or about one-quarter of the aggregate capitalization of the electric light and power industry.

And yet this movement which was presented as a “record trend to centralized management,” the list of companies covering nearly ten pages of the Commission’s records, was far exceeded by the mergers in the year following, 1926. In 1926 the number of mergers, according to the record, was more than twice as many as in 1925. The Electrical World in its article of January 1, 1927, quoted in full, as Exhibit No. 745 [Exh. Pt. 3, p. 38.] in the Commission’s report, gives a long and extended list with many details covering this year’s mergers and consolidations. Many small private and municipal properties were purchased and merged into a co-ordinated system. It was a very active period of consolidation in ownership and a simplification of organization and administration. [Exh. Pt. 3, pp. 38 ff.] During this year of 1926 there were over Zoo municipally owned light plants absorbed by the private corporations, according to these records. The list is given in full by state. [Exh. Pt. 3, p. 40.] There is also included in the record 21 ½ pages listing these various mergers. [Idem, pp. 42-63.]

In 1927 there were almost as many mergers as in 1926, although the number declined somewhat. The total was 828. [Idem, pp. 63-85.]

In 1928 there were recorded 730 mergers in all. However, the Electrical World for the first time in its review of the mergers during the year pointed out that the number was beginning to decrease. Nevertheless, there were 162 municipal plants that were absorbed during that year, according to the Electrical World, 464 general, 17 foreign, and 87 holding company mergers. Full details and a complete list, as in previous years, will be found in Exhibit 4168. [Exh. Pts. 10-16, pp. 335-361.]

In 1929 the number of mergers increased again, the total number being 908. The Commission’s record shows that “consolidations continued” but again suggests that “purchases and mergers have passed the peak.” Then follow 17 pages listing the mergers effected during that year and two pages of “municipal systems absorbed by private corporations in 1929.” [Pt. 2, pp. 973-996.]

Still Going On

 Thus it will appear that during the whole period covered by the records of the Commission this process of combination and consolidation, which is concentrating the ownership and control in the utility field, has been going on rapidly throughout the entire country and indeed in some foreign countries.

Speaking of the situation in 1928 the Electrical World remarks that there has been “a let-up in the purchase of properties,” but significantly adds that this is “in order to consolidate those already purchased:” [Exh. Pts. 10-16, p. 335.] The statement is also made that at the end of 1928 there is “in no part of the country any large number of properties that may be consolidated into one of the large holding companies.” In other words, the consolidations had in this view of the matter been practically completed. However, by the end of 1929 we find that the consolidations were still continuing and that there were even more in that year than in 1928.

Two major developments have been going on during recent years, according to the Electrical World, quoted by the Commission. One was the formation of the holding companies; the other was the development of comparatively large properties in each area to take full advantage of the economic possibilities of large scale production and unified operation. During 1929 these two trends continued.

“During the past few years,” this 1929 report goes on to say, “each local property has enlarged its scope of service by buying adjacent small properties or by extending its transmission system to outlying towns. This trend continued in 1929 and notably in the West and South. But the peak of this movement has passed and possibilities for local expansion are rather limited.” [Pt. 25, p. 973.]

It is interesting to note that one of the features of the movement in 1929 was the development of foreign control in the utility field. “Prospects are bright,” says the report, “for a big overseas utility growth backed by American capital and with American principles of construction and operation.” [Idem, p. 974.] Thus the merger movement has moved and, so far as the record shows, is still moving with remarkable swiftness in the direction of consolidation and unification in the utility field, and has even reached into foreign countries.

Chapter 12:
The Holding Company

Its Function, Advantages and Dangers

 The holding company is the most distinctive and characteristic feature in the recent development of financial methods of utility corporations. It is undoubtedly the most effective device yet developed in corporate finance for the achievement of their purposes, and plays a most important and significant role in all of the recent operations in the utility field.

There are two views of the purpose and function of the holding company brought out in the findings of the Federal Trade Commission. The first of these views is that presented by the witnesses for the utility companies. The second view is one that emerges from a careful study of the facts revealed piece by piece in the testimony of the accountants of the Commission and in the cross-examination of the witnesses. These two views are not necessarily antagonistic but rather complemental. Certainly no one would get a complete or adequate conception of the purpose and function of the holding company if he had before him only the views of the matter presented by the representatives of the utility corporations. And the final significance of the holding company can be seen and appreciated only after a careful review of the whole testimony of the Commission’s accountants and the cross-examination of the witnesses and a study of the confidential literature, correspondence and material which have been presented in the evidence.

The Holding Company as the Utilities View It

In their testimony before the Federal Trade Commission and in the literature which the utility companies have published, which appears in the exhibits of the Commission, the utility corporations’ view of the purpose and function of the holding company is set forth with clearness and emphasis. Looking at the matter from the standpoint of the utility corporations, the functions of the holding company are something as follows:

(1) General supervision, advice, and assistance to the subsidiary or serviced companies. For this service there is a fee charged based upon the percentage of the gross earnings or revenues of the supervised company. [Pts. 23 & 234, p. 117.]

(2) The second class of service rendered by the holding companies is that of construction work and supervision of construction, for which a fee is charged on the basis of a percentage of the cost of the construction.

(3) A third type of service is in the nature of special engineering investigations, accounting and other special services, for which a direct charge is made, sometimes with an added percentage for overhead.

(4) A fourth type of service is in the sale and marketing of securities. Certain fees are charged for this service?

Advantages of the Holding Company

 Out of a great number of excellent statements by representatives of the utilities that appear in various volumes of the hearings, we select the following as one of the most succinct in setting forth the advantages of the holding companies as viewed by the companies:

The benefits justifying the existence of the holding company are:

1. Financing on better terms than the local operating companies could command.
2. Rendering expert engineering and construction services at minimum cost.
3. Massing purchasing requirements of many subsidiaries, thus saving money for all of them and tending to reduce cost.
4. Giving small local companies the managerial ability and experience available to the largest companies.
5. Helping to make weak companies self-supporting by assisting them financially and making improvements and extensions necessary to make them self-supporting.
6. Improving the quality and reliability of service in small communities.
7. Displacing small inefficient plants by large generating stations.
8. Giving service from high tension interconnections to farms and small communities that could not themselves support individual plants. [Exh. Pts. 10-16, p. 749p see also Pt. 28, p. 221 ff. and for a still more extended statement Pts. 10-16, p. 164 ff.]

One of the best of the longer statements of the advantages of the holding company as viewed by the utility corporations themselves is one prepared by the American Gas and Electric Company at the request of the Federal Trade Commission, and appears as Exhibit No. 4525 in the records. [Pt. 22, pp. 682-721.]

The statement is too long and in some respects too technical for reproduction here, comprising nearly forty pages of fine print in the hearings. However, it is such a comprehensive statement of the matter from the standpoint of the companies that we shall undertake to review it, setting forth the more important considerations.

The Holding Company Generally

 The statement opens with a brief foreword in which appears the following:

“Who is capable of condensing into the necessarily brief pages of a memorandum, intended to serve as but one item in an exhaustive investigation, the economics, the romance, and the drama of the electric industry’s growth under holding company leadership in the United States in the last quarter century? The “dismal science” of economics has just as surely been the sound guiding principle of this growth as the romance of its accomplishments and effects has captured the popular imagination of our own and foreign peoples. The residents of literally countless towns, villages, hamlets, rural sections, and of many cities enjoy the advantages and witness the effect of the accomplishments without having any interest in the economic machinery which serves as the instrument….

“The holding company form of organization, of course, is not peculiar to the electric industry. Industry generally has availed itself widely of this economic instrument. The United States Steel Corporation was one of the early holding companies and today continues among the largest; the American Telephone and Telegraph Company exemplifies practically perfectly the striking advantages of this form of organization.”

The Union Carbide Corporation and the General Motors Corporation are other outstanding examples of holding companies in the industrial field. [Pt. 22, pp. 682-83.]

Functions of the Holding Company

 The function of the holding company is described at length in this statement of the American Gas and Electric Company. In this connection it is said that “by association in the American Gas and Electric Company holding company group, the credit of each of the subsidiaries is appreciably enhanced; the parent company advances funds to the subsidiaries as needed, being reimbursed when the time is propitious for the subsidiary to finance permanently; it serves  as the agency through which the permanent financing of the subsidiaries is done; and it provides the means by which all the subsidiary companies cooperate for their mutual advantage.”

The statement then presents a resume of “a large number of the services essential to the proper functioning of the subsidiaries.” Among these the following are mentioned:

(a) The services of a complete staff of 14 corporate officers who are also officers of the operating companies and as such supervise the functioning of every department of .the operating companies. (Our italics.)

(b) The services of a trained staff for the performance of many offices in connection with the drawing and recording of mortgages, work in respect to financing, compliance with requirements of “blue sky” laws, preparation and assistance in negotiation of contracts, examination of deeds, preparation of applications, protests, etc., to regulatory and tax commissions.

(c) A purchasing staff who are specialists in particular lines of material and give assistance in purchasing.

(d) The services of an auditing department consisting of a general auditor and two assistants, and a staff of 33 assistants. Of this force there are constantly in the field 20 auditors traveling from company to company checking and auditing general accounts, consumers’ accounts receivable, and storerooms.

(e) Services of an insurance department which inspects physical property and examines construction valuation records, etc.

(f) Services of a valuation department which, at the request of operating companies, makes appraisals in rate eases, financing, insurance, etc.

(g) A statistical and commercial department.

(h) An engineering department consisting of a chief engineer and 81 other engineers and draftsmen. “This department is in constant intimate touch with the operation of the subsidiaries, making surveys and studying conditions so that future needs may be anticipated, etc. [Pt. 22, pp. 687-88-89.]

Advantages of the Holding Company

 The statement goes on at great length and in detail, setting forth the advantages of the holding company. Among these may be mentioned briefly the following.

(a) FINANCING.. The necessity of an organization like the holding company is emphasized in the statement that the rapid development of the electric light and power industry requires an enormous amount of new capital. “The industry has been increasing its energy output,” the statement reads, “at a rate which has doubled the output every 5 to 5 ½ years.” (Our italics.) “It will be readily seen that this means an ever-increasing investment of new capital…. This money could not possibly have been provided from the earnings of the industry and had to be raised by financing; that is to say, by the sale of stock or bonds.” Permanent financing for the subsidiary companies has been accomplished by the holding companies in the following ways: (I) “Raising funds to retire bonds issued by subsidiary companies in former years under closed mortgages.” (2) “Raising of funds by the sale of bonds under existing open mortgages and under new mortgages and by the sale of preferred stock.” (3) “Raising funds by the sale of securities to permit the subsidiary companies to extend their operations by purchasing smaller companies operating in contiguous territory.” (Our italics.)

In connection with this matter of financing, the statement points out that during the five-year period ending December 31, 1928, the American Gas and Electric Company sold on behalf of its subsidiaries $59,192,000 worth of bonds and held in its treasury at that time $34,150,600 worth of subsidiary company’s’ stock. And the claim is made that when securities of subsidiary companies were sold at a loss, the holding company bore the losses itself, whereas if the securities were sold at a profit, the “practice has been to pass on to the subsidiaries all the excess so received.”
[Pt. 22, p. 691.]

“The holding company stands ready at all times to advance substantial amounts over long periods of time without collateral to its subsidiaries when they are unable to finance at favorable rates…. There has been as much as $35,000,000 at a given time so owing to the parent company by the subsidiaries.” [Pt. 22, p. 691.]

(b) INTERCONNECTION. The statement has a long and rather technical section dealing with the great advantages through the holding company by interconnection. The protection of the service, release of transmission lines for repairs, maximum utilization of water power, economy of operation, staggering installation of generating capacity, diversity of load, transfer of energy, interchange of spare parts, and other technical advantages are emphasized. [Pt. 22, pp. 692-95.]

(c) RATE REDUCTIONS. Great stress is laid upon the advantages to the public through reduction of rates in the statement. Comparative figures are presented to show that the savings to the customers by reason of the reduction of rates have amounted to $46,747,975 in the five-year period ending 1928, and in the fourteen-year period, $252,978,157. [Idem, pp. 710-11.]

(d) CENTRALIZED PURCHASING. On the matter of centralized purchasing as an advantage of the holding company some very interesting matter appears in the statement. “It is axiomatic,” it says, “that the purchase of material in large quantities enjoys lower prices, better services, closer contacts with market changes, quicker delivery, more prompt and equitable adjustment of differences than the small buyer located at points remote from commercial centers. There is one very great advantage inherent to the regular purchaser of material in quantity. His business is constantly sought by sellers of goods in the lines bought by him.” (Our italics.)

“Take, for instance, the matter of transformers and meters, the manufacturers of these devices have a regular scale of discounts which increases as the number of devices purchased from them increases. (Our italics.) Through these aggregate purchases the American Gas and Electric Company falls into the class receiving the greatest discount:’

The statement then quotes from several of the manufacturers and dealers that have given the American Gas and Electric Company better prices than could be given to separately operated properties. One of the statements reads: “The prices during 1928 average 10 per cent below what would have been our standard selling price. This lower selling price to you (the American Gas and Electric Company) is a concession due to the lower selling expense when such an amount of business is placed at a central point.” The quotation from another company reads: “The situation as far as your automobile buying is concerned is that probably at least So per cent of your subsidiaries buying independently could not obtain the national user’s agreement which calls for the initial 10 per cent discount and, in addition to this, by combining your purchases, you will earn an additional volume discount between 2 and 5 per cent, depending upon number of cars purchased.” From another company: “We do many things for the American Gas and Electric Company that we do not consider for one moment doing for any other small local property.” From another company: “There would be a saving of approximately 50 per cent of our sales burden of 11.2 per cent due to a volume of sales to the one company. This saving is largely accomplished by reason of a reduced sale figure, reduction in advertising and duplication of effort in general.” [Pt. 22, pp. 696-7.]

The statement estimates that a saving of $1,982,148.48 was effected through this centralized purchasing during 1928 alone. This amounted to an average of 8.29 per cent of the cost, according to the estimate. [Idem.]

(e) IMPROVEMENT IN THE SERVICE. Many pages in the statement of the American Gas and Electric Company are devoted to the various improvements in service that have been effected due to the service of the holding company.

(f) OTHER ADVANTAGES. Other advantages to the public that are stressed in the report are the conservation of coal due to new developments and improvements in the art brought about by the service of the holding companies; stability of mining and transportation and the decentralization of industry and population. [Pt. 22, pp. 718-19.]

Summary and Conclusion

Summarizing the advantages of the holding company, the statement in a final section emphasizes the point that the “holding company form of organization is founded on sound economics and its merits have been demonstrated in many fields of endeavor, industrial, as well as public service companies.” Many of these. advantages, the statement urges, are secured through this form of organization which could not have been secured in any other way.

“The management of the American Gas and Electric Company are themselves so thoroughly convinced of the `advantages of the holding company form of organization, with particular reference to the American Gas and Electric Company group,’ and they are so confident of agreement in this by the more than 600,000 customers being served by the operating companies of the group, that this brief statement of merits and accomplishments is submitted with considerable pride. We are willing to have the theories ignored and be judged by results.” [Pt. 22, pp. 720-21.]

“We are confident,” the statement says, “that the examiners and engineers of the Federal Trade Commission who in the course of the present investigation have spent weeks and months in contact with our organization, with our physical properties, and with our customers, have fully realized these advantages and accomplishments and will cheerfully bear witness to them.” [Idem.]

We shall see as we proceed with a review of the subject what these “examiners and engineers” of the Commission, the other witnesses and evidence show with regard to these matters.

The Holding Company as Revealed by the Commission’s
Examination

 The value and effectiveness of the holding company in the financial set up and successful operations of the utility corporations, as set forth by the representatives of the companies, may be frankly conceded. That there are certain phases and elements in the situation which they have not mentioned is to be expected. For ‘a more complete view and a better understanding of the significance of the function and purpose of the holding company we must turn to the records of the Commission and piece together the facts which their long, patient, and persistent investigation has revealed.

Studying the matter from this point of view and bringing together the evidence brought out in the examination and scattered throughout the volumes of the report, we may present the following as some of the more essential facts regarding the purpose, function and significance of the holding companies. And these are the matters which are of a special interest and importance to the general public and which, for obvious reasons, the public statements, literature, and testimony of the representatives of the companies are not likely to reveal.

We shall state but briefly in this chapter these latter functions of the holding companies, leaving for subsequent chapters the development of the details. The following then are some of the more concealed and yet most significant features regarding the holding companies which the findings of the Commission reveal:

(1) The Concentration of Earnings. The first outstanding fact that emerges from a study of the methods of the holding companies, as revealed in the cross-examination and especially in the testimony of the accountants of the Commission, is the concentration of earnings. As we explain elsewhere, [pp. 180 to 184.] the earlier report of the Federal Trade Commission, namely, Senate Document No. 213, makes very clear the manner in which the holding companies concentrate earnings. As this has been fully presented elsewhere, we need not review it here other than to point out briefly that by concentrating the earnings of the preferred and other non-voting securities of a company upon the common stock, the earnings are thereby often raised from 6 per cent to 10 per cent, and 15 per cent. And then by superimposing above the operating company a holding company, and again concentrating the earnings of the preferred and non-voting securities upon the common stock, the earnings on the latter in the first superimposed holding company may be raised to 40 or 50 per cent. And if above this holding company there is superimposed still another holding company with the same methods followed, the earnings are still further concentrated. And so on until the earnings on the common stock of a fourth or fifth superimposed holding company may and actually do in some cases reach the almost unbelievable rate of 100 per cent, or even 138 per cent. [Sen. Doc. 213, pp. 173-174.]

(2) Excessive Profits Earned. While the service of the holding company to the subsidiary serviced companies is undoubtedly a perfectly legitimate and certainly a very advantageous service to the underlying company; and while the charges for these services are perfectly legitimate and natural, the evidence nevertheless reveals the fact that these charges are often excessive. Moreover, in innumerable cases, as we shall show further on, the evidence shows that the charges for these services rendered to the subsidiary companies are seldom on the basis of cost but, on the contrary, are usually on the basis of excessive and sometimes extortionate rates. The profits on services rendered by the holding companies are shown to be 20, 89, and even 179 per cent.”‘ These excessive profits still further tend to concentrate earnings in the hands of those who control the holding companies.

(3) Profits Through Reorganization and Mergers. Again, while the service of the holding companies in the matter of assisting in the reorganization and merging of operating companies, and especially in assisting them to secure adequate financial management and financial resources, is a perfectly legitimate and very advantageous service, the findings show that the commissions charged for these services constitute another drain upon the industry which still further concentrates earnings in the hands of the holding companies. The findings show that the fees charged by some of these holding companies in bringing about reorganizations, mergers, and combinations are so great as to appear extortionate, and in the handling of stock-selling campaigns and particularly in the promotion of the so-called customer ownership campaigns for the sale of stock, which are frequently managed by the holding companies, the commissions are also a very considerable charge upon the industry. [pp. 141, 191 ff.]

(4) Concentration of Control. But perhaps the most important and significant of all of these less obvious, but nevertheless powerful functions of the holding company lies in the fact that it operates to concentrate control. Starting with the underlying operating companies, the control is concentrated, as is well known, in the hands of those who own the common or voting stock. If now there is superimposed over an underlying operating company a holding company, the control of which is also concentrated in the hands of those who own the voting stock; and if, in addition, this holding company controls not one but many underlying operating companies, it can be seen at once how rapidly, by this process, the concentration of control is brought into the hands of the few. And if, as the evidence shows, these holding companies are pyramided, one upon the other, until they stand 5 deep, it will be seen how powerful this device operates to concentrate the control of the whole structure. And then, as the holding companies themselves begin to merge: and the records show that in the three years from 1927 to 1929, inclusive, there were 228 mergers of holding companies: the process of concentration must be proceeding at a terrific rate.

We shall not attempt at this point to develop the evidence on these matters which will appear later. It may be sufficient just to mention the fact that in one instance it is revealed by the findings that an original investment of $1,000,000 has grown through these processes in the course of 24 years to $45,000,000, involving the control of properties valued at $375,000,000. Similar instances, which are typical of what is going on in this field, will be referred to in later chapters.

Dangers of the Holding Company

 That the utilities recognize the dangers inherent in this holding company device is indicated by the fact that frequently there appears in the evidence a word of warning. One of the typical instances is found in a statement by Samuel S. Wyer in which he quotes Samuel Ferguson, President of the Hartford Electric Light Company, as follows:

“The outstanding dangers of the holding company situation center around the investor rather than the consumer.

“The purchase of common stock control of operating companies at prices that may be in excess of value and the sale to the public of holding company securities based on such inflated value is creating a financial hazard that may result in grief to the investing public. Repeated warnings on this point have been issued by the Investment Bankers Association of America.

“In purchasing the securities of a holding company the investing public is in the same situation that it is in purchasing the securities of any other private corporation where there is no state or federal regulatory body with jurisdiction over the issue of securities.

“The mere bringing together of a number of independent units for the creation of one large unit does not necessarily make for economy in the integrated or “brought together” plant. Oui recent experience in well-known industrial combines has demonstrated that there is a limit to size, as far as increasing economy is concerned, and that mere bigness does not necessarily make for reduced costs. If the public is to receive no benefit from the economies effected by the holding companies, the service is of no value and public sentiment will demand the discontinuance of the holding company method of control.

“I know of no more reprehensible abuse than for speculators to buy up companies for high prices, put them into a holding company, and then, by trading upon the credulity of the investing public relative to claimed increases in economy to unload the holding company’s securities at advanced prices and thus get completely out from under before the bubble is punctured leaving the unfortunate final investor to face an angry consumer (Samuel Ferguson, President Hartford Electric Company: Electrical World, Mar. 20, 1926). [Exh. Pts. 10-16, pp. 749-50.]

Here then is the picture in outline of the modern holding company. Its avowed purpose and function may be legitimate and worthy enough. But when the picture of the whole procedure is completed, drawn laboriously out of the thousands of pages of the hearings of the report,’it is quite a different picture from the one that is presented to the public view by the proponents of the utility corporations.

Chapter 13:
The Holding Company

Pyramids of Power

 In the preceding chapter we have spoken of the holding company as a method by which the concentration in control of the electrical industry is being brought about. The way this device operates to concentrate control is described quite clearly and definitely in the earlier report of the Federal Trade Commission, and still more so in the present findings of the Commission.

On this point the earlier report has this to say: “During the last ten years electric power operating companies have been acquired by holding companies at an accelerating rate, until, at the end of 1924, 20 large holding company interests controlled 61 per cent of the total generating capacity of commercial electric power plants.” [Sen. Doc. No. 213, 68^th Congress, 2^nd Session, p. 168.]

Avowed and Real Object of the Holding Company

 Speaking of the purpose, avowed and real, of this modern device of the holding company, the earlier report of the Commission has this to say:

“One of the principal features in most of the electric power groups is the holding company. ‘This is usually justified as necessary in order to maintain control, to diversify investment and reduce risk, and to develop technical efficiency. Neither safety of investment through diversity nor security of professional service business through control of the clients has been regarded, however, as the sole motive actuating those who have obtained control of electric power companies and secured the control in an electric holding or investment company. It has been claimed that the activity in the formation of holding companies or in the acquisitions of additional subsidiaries by them and in the issuance of securities by these organizations during 1924, 1925, and 1926 largely represented the endeavors of promoters and speculators to take advantage of the so-called “superpower” idea by manufacturing securities with which to exploit the investing public.[Sen. Doc. No. 213, 68^th Congress, 2^nd Session, pp. 172-73.]

Thus both the avowed and the real purpose and function of the holding companies is clearly indicated. Later we shall take up the means by which this concentration of control through the holding company is  used to “exploit the investing public.” For the present we shall deal with the matter of the way this holding company is utilized to concentrate control in the hands of an ever-diminishing number of organizations and individuals.

Examples of Concentration of Control

 The earlier report of the Commission gives a number of very striking examples of the concentration of control in the electrical industry by means of these holding company arrangements. For example, the Middle West Utilities Company has 9 subsidiary holding companies, as well as a number of direct subsidiaries that are operating companies. The American Water Works and Electric Company had at one time 3 sub-holding companies. [Sen. Doc. No. 213, 68^th Congress, 2^nd Session, p. 175.]

Says this report:

“The foregoing illustrates a method by which, with a careful selection of a large number of operating companies so chosen as to afford the maximum diversity of risks, a relatively small investment in the common stock of a super-holding company can control a very large capital invested in the operating utilities and net a very large rate of return for the organizers even though public authorities restrict the return on the total investment to a moderate rate of return.” [Sen. Doc. No. 213, 68^th Congress, 2^nd Session, p. 174.

As a further illustration of the mechanism by which control is concentrated, the report goes on to say: “The Standard Gas and Electric Company had 16 direct subsidiaries…. Thus ownership by the parent company of $1,830,800 of voting stock effected control of a total investment represented by capital securities of $7,622,000.” [Sen. Doc. No. 213, 68^th Congress, 2^nd Session, pp. 192-193.] Other securities of other subsidiaries brings the total controlled capital in this company up to $95,345800, so that “$1 invested by the chief holding company controlled over $6.40 of capital invested in the operating companies.” [Sen. Doc. No. 213, 68gh Congress, 2^nd Session, pp. 193.]

The most spectacular case of pyramiding control of companies controlled by the Standard Gas and Electric System, according to the earlier report of the Commission, is that of the Northern States Power Company. In this case there were three layers of holding companies between the Standard Gas and Electric Company and the Northern States Power Company of Wisconsin and the other direct subsidiaries of the Northern States Securities Corporation. And by this method of pyramiding the Standard Gas and Electric Company, with an investment of less than $5,000,000 in the Class B Stock of the Northern States Power Company of Delaware, and $2,000,000 of Preferred Stock in the Northern States Power Company of Wisconsin, controls an investment of approximately $200,000,000. [Sen. Doc. No. 213, 68^th Congress, 2^nd Session, pp. 194-195.] In one case this pyramiding of holding companies in the Pittsburgh region is reported to have developed 4 and 5 holding companies pyramided by the most direct line, and 6 and 7 by the most indirect line and 5 holding companies were pyramided upon the San Francisco operating company. [Sen. Doc. No. 213, 68^th Congress, 2^nd Session, p. 196.] The H. M. Byllesby & Company, by this process of pyramiding of holding companies, “with an investment of less than $1,000,000 is able to exercise the voting control over more than $370,000,000 of operating capital.” [Sen. Doc. No. 213, 68^th Congress, 2^nd session, p. 197.]     In the Hodenpyl-Hardy group an actual investment of $9,500,000 exercised control over a total capital investment of $239,000,000. [Sen. Doc. No. 213, 68^th Congress, 2^nd Session, p. 203.]

In the Associated Gas and Electric Company an investment of $5,250,000 controls an investment of nearly $171,000,000. [Sen. Doc. No. 213, 68^th Congress, 2^nd session, p. 222.] In the Fitkin group an investment of $2,102,000 controls nearly $113,500,000. [Sen. Doc. No. 213, 68^th Congress, 2^nd Session, p. 231.]

In the Middle West Utilities Company, an Insull organization, there are 5 direct subsidiaries, (1) The American Public Utilities Company; (2) The North West Utilities Company; (3) The Central and Southwestern Utilities Company; (4) The New England Public Service Company, and (5) The Southwestern Securities Company, according to the earlier report of the Commission. This group is so organized as to its control that “the owners of about one-third of the stock, representing a book value of a little more than $28,000,000, not only control an investment of $353,000,000 in the businesses of operating power companies but are practically the beneficiaries of any increase in the earning power of that vast capital after paying 6 or 7 per cent on the bonds and preferred stocks of the operating companies and dividends on the sub-holding companies’ preferred stock.” [Sen. Doc. No. 213, 68^th Congress, 2^nd Session, p. 258.]

Testimony submitted in the hearings of the Commission on March 16, 1932, showed the connection of the New England Public Service Company and the National Electric Power Company, a subsidiary of the Middle West Utilities Company, an Insull holding company. According to this testimony “the National Electric Power Company held 91.5 per cent of the voting stock of the New England Company.”

Holding Companies Five Layers Deep

 In the case of the Penn-Ohio or Republic Railway and Light Company, the earlier report of the Commission finds a striking example of the pyramiding of holding company upon holding company until they are five layers deep. “Starting with a comparatively simple corporate structure in 1919,” the report says, “holding company after holding company has been interposed or superimposed until by the middle of 1926 the column supported by the original operating companies was five layers high, the line of descent being the Penn-Ohio Securities Corporation, the Republic Railway and Light Company, the Penn-Ohio Edison Company, the Pennsylvania-Ohio Electric Company and, finally, the Pennsylvania-Ohio Power and Light Company: [Sen. Doc. No. 213, 68^th Congress, 2^nd Session, p. 265.] In this instance the device known as the voting trust, which we shall discuss later, was used in bringing about the concentration of control.

It will thus be seen that while the. primary and more openly avowed purpose of the holding company device is to increase the facility with which the financing of operating companies may be secured, also an improvement in the engineering and management of these companies, the far more important purpose, or at least the final result, is to enormously concentrate the control of the industry and also to enormously increase the earnings of the few who exercise that control.

Chapter 14: Subsidiaries of the Holding Companies

The Hierarchy of Power

 The movement of concentration, combination and merger goes on with such rapidity in the electric light and power field that it is almost impossible to keep track of the various companies involved. Any attempt to list the holding companies and their subsidiaries, or the operating companies and their relationships, is certain to be out of date in a very few months at most, due to the rapid changes that are going on. The earlier report of the Federal Trade Commission, known as Senate Document No. 213 on “Control of Power Companies” gives the most complete list of the larger service groups, holding companies, combinations and underlying operating companies that is available. But that list, published under date of February, 1927, has already been superseded by changes that have occurred since then and, of course, more changes are occurring every year.

Quoting from the above last-mentioned report, we find that

“During the last ten years electric power operating companies have been acquired by holding companies at an accelerating rate, until, at the end of 1924, 20 large holding company interests controlled 61 per cent of the total generating capacity of commercial electric power plants. [Sen. Doc. No. 2313, 68^th Congress, 2^nd Session, p. 168.]

This rapid movement of concentration which during the ten years referred to had been going on with a constantly increasing rate, has since then continued and undoubtedly will still continue. Under these conditions it is obviously almost impossible to present an adequate or true picture of the existing organization of the electric light and power companies of the country which will not in a few months be considerably out of date. Nevertheless, it is interesting to present the picture as the Federal Trade Commission has found it, always bearing in mind the rapid change that is very likely to make it necessary to revise the list repeatedly as time goes on, in order to keep it up to date.

Classification of the Companies

 The electric light and power companies, according to the findings of the Commission, seem to fall under four main classes as follows

I. The so-called Service Groups-made up of holding companies which, either through direct or indirect ownership, or otherwise, and through engineering, financing, and other services exercise control over a large number of subsidiary companies.

II. Large Combinations, more or less independent of the so-called service groups, which nevertheless exercise a considerable degree of control over a great many subsidiary companies throughout the country.

III. Extensive Unit Developments, which are more or less independent but nevertheless have extensive ownership and service.

IV. Large Local Companies, such as the New York Edison, Detroit Edison, Southern California Edison, Philadelphia Electric, Brooklyn Edison, etc., serving certain local communities but of such magnitude as to constitute a considerable element in the situation?

Taking up the above groups of the various power utility organizations, the following table presents the more important of these groups, arranged as nearly as possible in’ the order of their size and importance.

Listing of Holding Companies, Large Combinations,

and Extensive Unit Developments in the Order
of Their Electric Output in

Kilowatt Hours for 1924.

[Sen. Doc. No. 213, 68^th Congress,
2^nd Session, pp. 168-169. (See also pages 36 to 38.)]

Company                         Electricity  Generated Kilowatt Hours

I. Service Groups:

Electric Bond & Share Co.          7,167,713,000

Byllesby                                       2,640,000,000

Hodenpyl-Hardy                           1,441,000,000

Stone & Webster                         1,188,000,000

Doherty                                        1,158,000,000

Barstow                                          569,000,000

White                                              388,000,000

Others(6)                                     2,819,000,000

Total (13 service groups)          17,370,713,000

II. Large Combinations:

Insull                                                 4,562,000,000

North American                                3,800,000,000

Public Service Co. of New Jersey   1,128,000,000

Others (4)                                        2,045,000,000

Total (7 large combinations)          11,535,000,000

III. Extensive Unit Developments:

Pacific Gas & Electric Co. 1,710,000,000

Duke Power Co.                 1,338,000,000

Montana Power Co.            1,117,000,000

Other (2)                                883,000,000

Total (5 extensive unit developments) 5,048,000,000

IV. Large Local Companies:

New York Edison                  2,051,000,000

Southern California Edison  1,466,000,000

Detroit Edison                       1,460,000,000

Philadelphia Electric             1,313,000,000

Brooklyn Edison                      635,000,000

Others (3)                                990,000,000

Total (8 large local companies) 7,915,000,000

Grant total                               41,868,713,000

Total commercial output for the United States               54,413,000,000

===========

The above table will give a general view of the existing power utility corporations of the country in the order of their importance, as they appeared at the end of 1924. The later investigations of the Federal Trade Commission appear, of course, in the volumes which constitute Senate Document No. 92, of which some 44 volumes and exhibits have been printed up to the present date (August, 1932), and constitute the report with which we are particularly concerned in this volume.

Holding Companies

 The present report of the Federal Trade Commission, in Exhibit 5, [Exh. Pt. 1, p. 96.] gives a list of 48 holding companies, as of January 1, 1928, which are members of the National Electric Light Association, and in Exhibit 6, [Idem, p. 97.] an additional list of 69 holding companies is given as of 1926, including those that are not members of the National Electric Light Association. The first list, however-those that are members of the National Electric Light Association, constitute the larger and more important holding companies.

The following are the holding companies constituting the membership of the National Electric Light Association, as mentioned above: [Exh. Pt. 1, pp. 96-97.]

American Electric Power Co., Room 2626, 120 Broadway, New York, N. Y.
American Gas & Electric Co., 30 Church Street,New York, N. Y.
American Utilities Co., Harrisburg, Pa.
American Water Works & Electric Co. (Inc.),50 Broad Street, New York, N. Y.
Associated Gas & Electric Co., 33 Liberty Street, New York, N. Y.
Atlantic Public Utilities (Inc.), 70 State Street, Boston, Mass.
W. S. Barstow & Co. (Inc.), 50 Pine Street, New York, N. Y.
Buffalo, Niagara & Eastern Power Corp., Electric Bldg., Buffalo, N. Y.
Byllesby Engineering & Management Corp., 231 S. La Salle Street, Chicago, Ill.
Central Indiana Power Co., 606 Guaranty Bldg., Indianapolis, Ind.
Central Public Service Corp., 209S. La Salle Street, Chicago, Ill.
Central & South West Utilities Co., 1100 Allen Bldg., Dallas, Tex.
Cities Service Co., 60 Wall Street,New York, N. Y.
Cities Service Power & Light Co., 60 Wall Street, New York, N. Y.
E. W. Clark Engineering Corp., 321 Chestnut St., Philadelphia, Pa.
Columbia & Electric Corp., 61 Broadway, New York, N. Y.
Commonwealth Power Corp., Jackson, Mich.
Community Power & Light Co., 205 Planters Bldg., 4th and Pine Streets, St. Louis, Mo.
Continental Heat & Light Co., 611 Power Bldg., Montreal, Quebec, Can.
Day & Zimmermann (Inc.), 1600 Walnut Street, Philadelphia, Pa.
Henry L. Doherty & Co., 60 Wall Street, New York, N. Y.
Electric Bond & Share Co., 2 Rector Street, New York, N. Y.
Electric Management & Engineering Corp., 57 William Street, 14th Floor, New York, N. Y.
Electric Public Utilities Co., 29 S. La Salle Street, Chicago, Ill.
Electrical Securities Corp., 31 Nassau Street, New York, N. Y.
Engineers Public Service Co., 120 Broadway, New York, N. Y.
Federal Light & Traction Co., 52 William Street, 21st Floor, New York, N. Y.
General Engineering & Management Corp., 165 Broadway,New York, N. Y.
General Public Utilities Co., 16oo Walnut Street, Philadelphia, Pa.
General Utilities & Operating Co., 1310 Standard Oil Bldg.,Baltimore, Md.
Hodenpyl-Hardy & Co., 14 Wall Street, New York, N. Y.
Inland Power & Light Corp., 72 W. Adams Street, Chicago, Ill.
Laurentide Power Co., Grand’ Mere, Quebec, Can.
Middle West Utilities Co., 72 West Adams Street, Chicago, Ill.
Midland Utilities Co., 2025 -122 S. Michigan Ave., Chicago, Ill.
Mohawk-Hudson Power Corp., 126 State Street, Albany, N. Y.
National Electric Power Co., 57 William Street, New York, N. Y.
National Public Service Co., 165 Broadway, New York, N. Y.
New England Public Service Co.,Augusta, Me.
North American Light & Power Co., 231 South La Salle Street, Chicago, Ill.
Peoples Light & Power Corp., 27 William Street, Suite 914-922, New York, N. Y.
Stone & Webster (Inc.), 49 Federal Street,Boston, Mass.
Charles H. Tenney & Co., 200 Devonshire Street,Boston, Mass.
United Gas Improvement Co., Broad and Arch Streets,Philadelphia, Pa.
The United Light & Power CO., 733 Illinois Merchants Bank Building, Chicago, Ill.
United Public Service Co, 100 West Monroe Street, Chicago, Ill.
Utilities Power & Light Corp., 327 S. La Salle Street, Chicago, Ill.
The J. G. White Management Corp., 33 Liberty Street, New York, N. Y.

The Holding Companies and Subsidiaries in
Order of Their Importance

Combining the findings of the Federal Trade Commission with reference to the holding companies, as presented in their present report [Sen. Doc. No. 92, 70^th Congress, 1^st Session.] with information supplied from the earlier report of the Commission, Sen. Doc. No. 213, 68^th Congress, 2^nd Session.] the holding companies with their respective subsidiaries may be presented as follows:

I. Service Groups.

The main holding companies in the order of their importance are the Electric Bond and Share Company, with its numerous subsidiaries; the Byllesby Company; Stone and Webster; the Doherty, Barstow and the White groups. There are several other smaller ones.

Taking up first the largest and most important of these service groups, and the one upon which the Federal Trade Commission has made its present report, we have the Electric Bond and Share Company. This company and its subsidiaries may be listed as follows:

(I) The Electric Bond and Share Company

I. American Power & Light Co.

Citizens Power & Light Co., Council Bluffs, Iowa.
Central Arizona Light & Power Co., Phoenix, Ariz.
Consumers Water Co., Miami, Fla.
Crystal Ice & Cold Storage Co.,Dallas, Texas.
Eagle Pass Water Co.,Eagle Pass, Texas.
Florida Power & Light Co., general office,Miami, Fla.
Fort Worth Power & Light Co., Fort Worth, Texas.
Helena Gas & Electric Co., Helena, Mont.
Kansas Gas & Electric Co., general office, Wichita, Kans.
Miami Beach Railway Co., Miami, Fla.
Miami Water Co.,Miami, Fla.
Minnesota Power & Light Co., general office,Duluth, Minn.
Missoula Public Service Co., Missoula, Mont.
Montana Power Co. (The), group,Butte, Mont.
Nebraska Power Co.,Omaha, Neb.
Northern Power Co.,Superior, Wis.
Northwestern Electric Co., general office,Portland, Ore.
Pacific Power & Light Co., general office,Portland, Ore.
Portland Gas & Coke Co.,Portland, Ore.
St. Augustine Co.,St. Augustine, Fla.
Superior Water, Light & Power Co.,Superior, Wis.
Texas Electric Service Co., general office,Dallas,Texas.
Texas Power & Light Co., general office,Dallas, Texas.
Texas Public Utilities Corp., general office,Dallas, Texas.
Washington Water Power Co. (The), group, Spokane, Wash.

II. Electric Power & Light Corporation.

Arkansas Power & Light Co. (general office, Pine Bluff, Ark.), Little Rock, Ark.
Dallas Power & Light Cd. Dallas, Texas.
Dallas Railway & Terminal Co.,Dallas, Texas.
Dallas-Terrell Interurban Ry., Dallas, Texas.
Idaho Power Co., general office,Boise, Idaho.
Inter-City Terminal Ry. Co., Little Rock, Ark.
Louisiana Gas & Fuel Co., Shreveport, La.
Louisiana Power & Light Co., New Orleans, La.
Mississippi Central Power Co.,Jackson, Miss.
Mississippi Power & Light Co., Jackson, Miss.
Nevada Power Co., Boise, Idaho.
New Orleans Public Service (Inc.), New Orleans, La.
Salmon River Power & Light Co. (general office, Boise, Idaho),Salmon, Idaho.
Texas Interurban Ry., Dallas, Texas.
Utah Light & Traction Co.,Salt Lake City, Utah.
Utah Power & Light Co., general office, Salt Lake City, Utah.
Western Colorado Power Co.,Durango, Colo.

III. National Power & Light Co.

Birmingham Electric Co., Birmingham, Ala.
Birmingham & Edgewood Electric Ry. Co., Birmingham, Ala.
Carolina Power & Light Co. (general office, Raleigh, N. C.), Asheville, N. C.
Holston River Electric Corporation, Rogersville, Tenn.
Houston Lighting & Power Co., Houston, Texas.
Knoxville Power & Light Co., Knoxville, Tenn.
Memphis Power & Light Co., Memphis, Tenn.
Memphis Street Ry. Co., The, Memphis, Tenn.
South Texas Utilities Co., Houston, Tex.
Tennessee Public Service Co., Newport, Tenn.
West Tennessee Power & Light Co., Jackson, Tenn.

IV. Lehigh Power Securities Corporation.

Pennsylvania Power & Light Co., general office, Allentown, Pa.
Lancaster Group, Edison Electric Co., general office, Lancaster,  Pa.
Transit Group, Lehigh Valley Transit Co., general office, Allentown, Pa.

V. American & Foreign Power Co.

Nations in which operating plants are located.

Argentina
Brazil
Chile
Colombia
Costa Rica
Cuba
Ecuador
Guatemala
Mexico
Panama
Venezuela
China
India

VI. American Gas and Electric Co.

Appalachian Electric Power Co.
Ohio Power Co.
Indiana & Michigan Elec. Co.
The Scranton Electric Co.
Atlantic City Elec. Co.
Ky. & W. Va. Power Co.
Wheeling Elec. Co.
Ind. General Service Co.
Kingsport Utilities, Inc.

VII. Commonwealth & Southern Corporation.

VIII. Electric Investors, Inc.

Investment in various banks, insurance, industrial, public utility, non-utility service and other operations both at home and abroad. [Pts. 23 & 24, pp. 420-423.]

As indicating the rapidity with which the process of combination and concentration is going on, it is interesting to note that one of the quite important groups of the subsidiaries of the Electric Bond and Share Company, namely, the Hodenpyl-Hardy properties, has already been absorbed by a merger under date of January 7, i93o, involving the Southeastern Power and Light Company, Allied Power and Light Corporation, Commonwealth Power Corporation, Penn-Ohio Edison Company, and the Commonwealth and Southern Corporation, in the formation of a merged company now known as the Commonwealth and Southern Corporation. [Pt. 27, p. 5.] Thus these particular properties which appeared in the earlier reports of the Commission have now entirely disappeared from the picture. They are not listed at all in the 1930 or 1931 Moody Analysis of Public Utilities.

The present report of the Federal Trade Commission has not up to date (August, 1932) reported upon the other holding companies and their subsidiaries and sub-subsidiaries other than those of the Electric Bond and Share Company, as presented in the above table. In order, therefore, to complete the presentation of the list of the other holding companies and their subsidiaries, we will have to refer to the earlier report of the Commission until such time as the present hearings are completed. And while this earlier report is, of course, already somewhat out of date by reason of subsequent mergers, consolidations, and absorptions, it will serve at least to give in a general way a picture of the situation as it stood at that time (1924)

(2) The Byllesby Group

The Byllesby group constitutes another one of the large combinations which controls subsidiaries and sub-subsidiaries too numerous to mention and covering more than two pages of the record merely to list the companies in the earlier report of the Commission. [Sen. Doc. No. 213, 68^th Congress, 2^nd Session, pp. 188-190. (See Moody’s Manual for more recent data.)]

(3) Stone & Webster Group

 This organization differs somewhat from the Electric Bond and Share Company and yet exercises a considerable control over a very large number of underlying operating and subsidiary companies. The list will be found on pages 177 to 179 of the earlier report of the Commission. [Sen. Doc. No. 213, 68^th Congress, 2^nd Session, pp. 177-179.]

In Moody’s for 1930 (page 576) it is stated that “the properties under supervision of the Stone & Webster Service Corporation are located in 23 states of the United States, in Canada and in the West Indies.” They serve a population of over 6,000,000 and have annual gross earnings of over $80,000,000.

(4) The Cities Service or Doherty Group

The Cities Service is also known as the Doherty Group of Utilities. This group includes more gas, oil refining, and oil transportation companies than it does electric power companies. The list of companies controlled by this group, together with the subsidiaries and sub-subsidiaries covers nearly two pages of the earlier report of the Commission. [Sen. Doc. 213. See page 204-206.]

Moody’s Manual for 1930 states that this company controls “more than 65 public utility companies rendering electric light, power, gas, or transportation service in 20 states and the Dominion of Canada.” It serves territories having a population of about 4,000,000 in 1,000 communities. The list of subsidiaries and communities served by this company occupies nearly three full columns in Moody’s Manual for 1930, [Moody’s See page 1991.]

(5) Other Companies in the Group of Service Companies

Besides the companies above mentioned there are several other groups in this section, among them the Barstow group; [Sen. Doc. 213, 68^th Congress, 2^nd Session, pp. 210 ff.] the White group; [Sen. Doc. No. 213, 68^th Congress, 2^nd Session, pp. 217 ff.] the Fitkin group; [Sen. Doc. No. 213, 68^th Congress, 2^nd Session, pp. 223 ff.] the Public Service Corporation of New Jersey;[Sen. Doc. No. 213, 68^th Congress, 2^nd Session, pp. 260 ff.] the Columbia Gas and Electric Company. [Sen. Doc. No. 213, 68^th Congress, 2^nd Session, pp. 262 ff.]

II. Large Combinations. In view of the fact that so many changes have been made since this earlier report of the Federal Trade Commission, it may not be wise to undertake to give more than a brief outline or skeleton of these larger combinations in the power field, referring the reader who desires more detailed and recent information to the various analyses of public utilities, either by Moody or Poor. Among these large combinations and their subsidiaries may be mentioned the following:

(I) The Insull Group

 This group comprises the Commonwealth Edison Company, the Public Service Company of Northern Illinois, the Middle West Utilities Company and its subsidiaries. The list of these various companies of the Instill Group and their subsidiaries covers two and a half pages of the earlier report of the Federal Trade Commission in merely listing the companies.

By the end of 1925, according to the earlier report of the Commission, the Insull companies served 1,836 communities in 16 states. The report states that recent additions have been made to this group so that the list would be considerably extended even at that date. Moody’s Manual for 1931 gives a list of 4,741 communities served by this group in 30 different states, showing the rapid growth of this organization during the last few years? [See Chapter XXIX for more recent, fuller details regarding Insull companies.]

(2) The North American Company

 The North American Company includes such important organizations as City Utilities Company, Mississippi River Power Company-in all 13 subsidiaries, a score or more of sub-subsidiaries, and other underlying companies. [Sen. Doc. No. 213, 68th Congress, 2^nd Session, pp. 240-241. (See Moody’s for more recent data.)]