Chapter 65: Regulatory Commissions
Chapter 66: Pinchot’s Plan for Pennsylvania
Chapter 67: The Breakdown of Regulation
Chapter 68: Who Rules American and How?
Chapter 65: Regulatory Commissions
Regulating the Regulators
Three things stand out in the evidence presented in the hearings of the Federal Trade Commission in reference to regulation and regulatory commissions
First, that a very close and friendly relation is maintained between the utility corporations and the regulatory commissions.
Second, that the utility corporations regard the regulatory commissions as their chief protection and defense and, therefore, use their influence and efforts to have them maintained.
Third, that there is a widespread and’ growing dissatisfaction with the performances of the utility commissions and a growing movement to have them abolished.
Relations Between Utilities and Commissions
First of all, we note the “friendly relations” between the utilities and the utility commissions. – From the Director of the Alabama Public Utility Information Bureau we have this:
“We also maintain friendly relations with the members of the Public Service Commission of Alabama, as we stand for state regulation, which is an issue to a greater or less extent in many states; they feel that we will uphold their hand. The Alabama public commissioners seem to appreciate the work of this organization.” [Exh. Pts. 10-16, p. 18.]
This friendliness between the utilities and the commissions is further evidenced by the fact that in state after state, whenever the Commission has been under fire the utilities have come to their rescue. In Virginia, for example, we learn from the records that a “resolution has been introduced in both houses,… the effect of which, if passed and approved, will be to destroy the jurisdiction of the State Corporation Commission,” and, therefore, the representative of the utility organizations of the state is urging upon all of the companies that “every step should be taken to defeat the resolution in the interest of the public, the forward policy of the state, and the good of the utilities…. Be sure to register your opposition to this measure by letters and telegrams to your representatives in the legislature, and by all other means in your power, and do it now.” [Letter of F. W. King to the Public Service Companies of Virginia. Exh. Pt. 3, p. 177.]
Responding to this call, Mr. Cecil L. Reid, Vice-President of the Halifax Power Company of South Boston, Virginia, writes:
“I have personally taken the matter up with the Kiwanis Club and the Young Men’s Business Association, and they have promised their active support and their efforts to kill this bill.”
Mr. Reid’s letter then goes on to explain that he had written to the president of the First State Bank in Chase City to the effect that if this bill went through, the company would not consider building a transmission line into their town. He says:
“I have mailed him a copy of this resolution, and he promises that the business men of Chase City will use their efforts to align their representatives against same.”
“The owner of this company is a very wealthy Philadelphian and is very ambitious for the development of this section. I expect to be with him Thursday and Friday. I will get him to have the representatives from this territory, with whom he has considerable influence, to try to kill the bill.
“The Young Men’s Business Association and the Kiwanis Club have decided to send “a representative to Richmond tonight and take up the matter personally with their senator and representatives.
If the writer can be of further service you may rest assured that I will be glad to do so. [Exh. Pt. 3, pp. 177-78.]
Vigorous Defense of the Commissions
That the above is only a typical instance of the way the utilities went to the support of the regulatory commissions when they were endangered is shown by reports of the companies from New York State. The annual report of the committee on public service securities for 1923 on its “legislative activities,” says:
“The current year is one in which many state legislatures have been in session. There were more or less active efforts, in some cases political, in six states to break down state wide regulation of utilities and to revert to the harmful method of local regulation by the municipalities (so-called home rule). Much time and attention has been required of your committee and several group legislative committees, but in every case these home rule efforts were unsuccessful.” (Our italics.) [Exh. Pt. 2, p. 738.]
Similarly, in Tennessee, we are told, that “only the concerted activity of every public utility industry in the state saved the Commission in the Senate, the repeal bill being tabled by a vote of 18 to 11.… Several times our back was to the wall but we managed to retrieve and came out sailing pretty smoothly…. When the governor called a conference of mayors and officials of the cities of the state to discuss the public utilities repeal, we saw that the gathering was liberally attended by about 15 or 20 of the smaller cities where the Commission’s activity had been particularly helpful. This counteracted the political hullabaloo of Memphis and Chattanooga to a very large extent.” [Exh. Pts. 5 & 6 p. 637.]
In Missouri, according to the report of J. B. Sheridan of the Missouri Committee on Public Utility Information, “certain proposals looking to the abolition of the (regulatory) commission have come up in the constitutional convention,” and he writes:
“I see the necessity of being prepared to support the commission either tactfully and quietly or openly and boldly, as the committee might decide when the time comes.”
Subsequent records show that the committee was active and successful in their efforts to protect and maintain the commission.
Discussing the general policies of the utilities in a meeting at St. Louis in 1924, the secretary of the state organization mentions as one of the “well-defined general policies and plans of action, based upon the fundamentals of the public utility industry” and one that “is of great advantage in the direction of publicity work”: “support of the public service commission.” [Idem, p. 593.]
Commissioners Guest Speakers at Conferences
“The total expenses for such speakers at the national conventions, 1920 to 1928, inclusive, is $12,332.20. The speakers included state commissioners of railroads and utilities, and employees of such commissions, as follows:
“1920, Convention, one from Wisconsin, $34.09.
“1922 Convention, three from Wisconsin, $332.99.
“1923 Convention, two from State of Washington, and one each from Iowa, Kansas, and Massachusetts; total expense, $1,067.74.
“1924 Convention, one each from Pennsylvania, Wisconsin, Nebraska, and the secretary of the national association from Washington, D. C.; total expenses, $425.96.
“1925 Convention, one from Pennsylvania, $1,022.41.
“1926 Convention, one from Nevada, $1,000.
“1927 Convention, one from Nevada, $1,232.12, and the secretary of the National Association of Railroad and Utility Commissioners, Washington, D. C., $41.20.
“1928 Convention, one from Massachusetts, $60.
“The president or a vice president of the National Association of Railroad and Utility Commissioners was usually one of such speakers.” [Exh. Pts. 10-16, pp. 912-913.]
Mr. John F. Shaughnessy was paid $1000 for his expenses in connection with attending and addressing the utility convention of the National Electric Light Association in 1926, at the time that he was Vice-President or Vice-Chairman of the National Association of Railway and Utility Commissioners and a member of the Nevada State Commission. (Italics ours.) [Pt. 7, p. 71.]
Mr. G. C. Matthews of the Railroad Commission of Wisconsin received $148.86 to cover his expenses in attending the 1924 convention of the National Electric Light Association. [Idem, p. 77.]
Mr. William J. D. Ames of the Public Service Commission of the State of Pennsylvania received a check for $35 for his expenses in attending the same convention. [Idem, p. 78.]
Hon. O. C. Merrill, Executive Secretary of the Federal Power Commission of the United States Government, was introduced “as the chairman of the southern Appalachian water power conference” held in Asheville, N. C., in June, 1922, and delivered an extended address in which, among other things, he stated very clearly the basis for rate regulation and for purchase of the properties by the government or other public agency at the termination of the license or for their transfer to another licensee. [Exh. Pts. 7, 8 & 9, pp. 191-196, especially p. 195.]
Subtle Influences
In a speech by Mr. Leon C. Bradley, Director of the Alabama Public Utility Information Bureau, reference is made to the efforts of the utility companies to influence the regulatory commission. He says
“We have not overlooked members of the public service commission in our work and maintain the most friendly relations with all of them, as well as the members of their staff. We have been assured of their appreciation of our work, and as one of them recently told the director, our work was making it easier for the commission to give the utilities fair treatment without arousing unfavorable criticism on the part of a misunderstanding public.” [Pt. 7, p. 128.]
The subtle ways in which the utility companies use their influence over the state regulatory bodies is indicated by such instances as that reported in New Jersey. At the annual meeting of the New Jersey Utility Association in May, 1924, a banquet was tendered, paid for by the Association, and one of the prominent members in attendance was the “chief engineer of the New Jersey Utility Commission, Col. Philander Betts, whose expenses were paid.” [Idem, p. 61.]
Commissioners Against Public Ownership
That these friendly relations had the desired influence in bringing about a friendly attitude on the part of the regulatory commissions towards the utilities is shown by the fact that in various reports, statements, and addresses by these regulatory commissions and their officers, there is a decided stand in favor of private ownership and in opposition to public ownership. For example, according to the record, “public utilities commissioners favor private ownership (March, 1927). The committee on public ownership and operation of the National Association of Railroad and Utilities Commissioners, who are charged with the regulation of public utilities in the various states, does not believe in public ownership, and in a report submitted at its annual meeting at Asheville, N. C., points out” a long list of arguments against municipal and public ownership. [Exh. Pts. 7, 8 & 9, p. 329.]
State utility, commissions have, not been quite so outspoken, it appears, but we find at one place an extended address by Lewis E. Gettle, chairman of the Railroad Commission of Wisconsin, on “The Importance of State Committee Work as Regulatory Bodies See It.” In this report Mr. Gettle highly commends the work of the various state committees of the utility corporations, saying that they are “admirably conceived and organized” and doing a work “closely essential, not only to the comfort and convenience of the people but to the very existence of our modern social and business fabric. I am sure that the commissions welcome the activities of these committees and their bureaus as effective aids to the accomplishment of the common purpose of the utilities and the commissions to establish and maintain the highest class of service at the lowest reasonable cost.” [Exh. Pt. 2, pp. 693-94.]
Halford Erickson, chairman of the Wisconsin State Railway Commission, “summarizes the results of his investigation of municipally owned utilities in Wisconsin,” concluding that “municipal plants, as a rule, furnish poorer service than privately owned or operated utilities”; that they are “slow in responding to new discoveries and improved methods”; that “discriminations in rates were as flagrant in municipal as in private plants”; that “low rates charged by municipal plants are not often due to the low cost of production but largely, in one way or another, upkeep, and other costs are shifted from the consumer as such to the taxpayer as such,” and that “municipal plants are exceedingly backward in their methods of bookkeeping.” [Exh. Pts. 10-16, p. 846.]
Utility Men on the Commissions
Looking more closely into the record we discover that this “friendliness” between the utilities and the commissions is something quite substantial. In some cases the utilities seem to have had their own men on the commissions.
Thorne Browne of Nebraska. Horace M. Davis, Secretary of the Nebraska Public Utility Information Bureau, testified that when Thorne Browne was a candidate for re-election to the Nebraska Railway Commission the utility companies were discussing ways and means of “raising some money to assist Mr. Browne’s campaign.” [Pt. 11, p. 76.] And Mr. Davis himself, although of a different political party than Mr. Browne, was also discussing means of raising further contributions to Mr. Browne’s campaign fund. When pressed for details, and especially for the name of the party with whom he was carrying on this discussion, Mr. Davis repeatedly declined to mention the name. Finally he was told that the commission would adopt measures compelling him to answer, whereupon he finally mentioned the name of F. E. Helvey, Secretary for the Insurance Federation of Nebraska, as the party with whom he had discussed the matter of contributions for the election of Thorne Browne to the State Railway Commission of Nebraska.
In spite of the support of the utility corporations, Thorne Browne was defeated for re-election, and Mr. Davis was discharged as Director of the Nebraska Utilities Information Bureau, and Mr. Browne was given the place. In a letter written by Mr. Davis to John N. Cadby, Executive Secretary of the Wisconsin Utilities Association, Mr. Davis throws this interesting light upon this political situation.
“Last fall T. A. Browne was defeated for re-election to the State Rail Commission. Our people were particularly interested in him and lost immeasurably in his defeat. They figured they owed him something: true enough.”
So they let Davis out to make a place for Mr. Browne.
Here is certainly an interesting and significant situation. A member and chairman of a state utility commission is revealed as a man in whom the utilities are “particularly interested”; so particularly interested that they seem to be deeply concerned about securing his re-election to the commission; and, failing in that, felt that they “owed him” so much that they make a place for him as secretary of their state information bureau, and do it in such a “clumsy way” that Mr. Davis, who was discharged to make the place for him, “felt peeved” and gave the whole thing away in a letter to a fellow-secretary in another state. [Exh. Pts. 5 & 6, p. 1083.]
In one place Mr. Browne is spoken of as “a common carrier from the outside: who is now doing his work from the inside.” [Exh. Pt. 3, p. 608.]
Frank Smith on the Illinois Commission. Another glaring instance of the close and friendly relations between a state utility commission and the utility corporations was that of Frank Smith, Chairman of the Illinois Commerce Commission. Here was a man in whom the Insulls of the Middle West Utilities Company were so interested that, according to the record, they contributed heavily to secure his election to the United States Senate. Before the Reed Committee of the Senate, as we have explained in a previous chapter, Samuel Insull testified that he contributed $272,000 for use in the Illinois political campaign of igz6, and that the money was distributed to the Frank L. Smith, Small-Lundeen, and Harding organizations. Dec. 9. [pp. 245, 274.]
Other Commission “Friends” of the Utilities
Another significant evidence of the friendly relations between the various regulatory commissions and the utility corporations is found in the numerous instances in which members of these commissions are promoted to lucrative positions in the employ of the utilities. The number and frequency of these instances can not be overlooked by one who reads the record. Without attempting to compile a complete list, the following are some of the more striking examples of these promotions of the members of regulatory commissions to positions of importance in the service of the utility corporations:
(1) George F. Oxley, formerly secretary of the Colorado Public Utilities Commission, becomes director of the Department of Public Information of the National Electric Light Association. [Pt. 1, p. 19.]
(2) Paul S. Clapp, who was formerly with the United States Department of Commerce, becomes the managing director of the National Electric Light Association. [Idem, p. 2.]
(3) Carl D. Jackson, formerly chairman of the Railroad Commission of Wisconsin, later president of the National Association of Railway Utilities Commissioners, becomes general counsel for the National Electric Light Association and the American Gas Association. [Pt. 1, pp. 1, 27.]
(4) William J. Hagenah, formerly of the Wisconsin Railroad Commission, is now vice-president of the Byllesby Engineering and Management Corporation, and counsel for the Standard Gas and Electric Company.
(5) Paul Haynes, former member of the Public Service Commission of Indiana, becomes a speaker and writer for the utility organizations. [Pt. 1, p. 27; Exh. Pts. 5 & 6 p. 584.]
(6) Alexander Forward, former member of the State Corporation Commission of Virginia, becomes managing director of the American Gas Association. [Pt. 1, pp. 38-45.]
(7) J. W. West, Jr., former employee of the State Corporation Commission of Virginia, becomes a member of the headquarters staff and secretary of the commercial section of the American Gas Association? [Idem, p. 45.]
(8) A. Gordon Keen, formerly of the Pennsylvania Public Service Commission and of the New York Public Service Commission, becomes service engineer for the American Gas Association. [Idem, p. 45.]
(9) G. C. Maxwell, former secretary of the Ohio State Public Utilities Commission, becomes an active speaker and propagandist for the utility companies and “traversed the entire State of Ohio, telling the story of the utilities.” Especial. emphasis was placed upon the fact of his previous membership in the regulatory body of Ohio by the utilities in advertising the importance of his service to them.
His position and long service with the State Utilities Commission, of course, had made it possible for him to learn of the problems affecting the utility industry from the standpoint of both the operators and the’ public. This gave him a prestige before audiences and a drawing power that could hardly be accorded any one else in other situations. (Our italics.) [Exh. Pts. 5 & 6, p. 948.]
Mr. Maxwell was paid $3,600 a year and expenses and, according to the word of the utilities, he was such an extremely effective speaker that “if any came to scoff, they remained to pray. If any came resigned to being bored … they met with surprises. If any came with deep-rooted prejudices, they left thinking and wondering.” [Exh. Pts. 5 & 6, pp. 950-51.]
(10) Harvey Wood of the Illinois Commerce Commission became a radio speaker for the utilities and “made several very good talks over the radio on the subject of state regulation versus municipal regulation,” etc. [Exh. Pt. 2, p. 218, with full text of speech, pp. 218-223.]
(11) Thorne Browne, above mentioned, chairman of the Nebraska State Rail Commission, became secretary of the Nebraska Utilities Information Bureau upon being defeated for re-election to the regulatory body. [Exh. Pts. 5 & 6, pp. 1082-83.]
(12) Colonel William Kelly, who had been formerly with the Federal Power Commission, is now vice-president of the Niagara Falls Power Company, was chief engineer of the National Electric Light Association, and prominent in the preparation of a report against certain new regulations of the Power Commission concerning service contracts and charges thereunder. [Pt. 17, pp. 9-10.]
(13) Frank Milhollan of the North Dakota Utility Commission, a speaker at the 1926 convention of the American Gas Association, is later an official of one of the Nebraska power companies. [Exh. Pt. 3, p. 469.]
Commissions as “Buffers” for the Utilities
Whatever may have been the attitude of the utilities towards regulation and regulatory commissions at the beginning, they seem now to have come to look upon them as their surest and best defense. On every possible occasion and in connection with every phase of the question, the utilities are constantly assuring us that regulation and the regulatory commissions are a complete protection to the public and an absolute safeguard in all respects.
In an article in The American City of March, 1921, quoted in the Commission records, there is a discussion of “the change in attitude of the public service companies toward state regulation.” And in this article the utility commissions are described as buffers for the corporations. This article reads:
“Now the utilities fear that the Legislature of Illinois may do away with the Public Utility Commission of that state. They fear that by so doing the utilities will become a “political football.” They want the protection of the commission, even though they do sometimes reduce the profits, operating salaries, and management fees, and criticize managerial methods of the utilities. Utilities realize that it is due to the public utility commissions alone that many of them are able to live and do business. These are, of course, hard days for the public service commissions. . . . The public is dissatisfied with the creature it has created. It is not keeping rates for gas, water, electricity, trolleys, and telephones down, but constantly permitting them to mount higher and higher. . . . Thus, that which was the protection of the public a few years ago is now considered by the public to be its menace, and that which, in the mind of the utility operator, menaced the life of the utility and took away its individuality and independence is now its protector.” [Exh. Pts. 7, 8 & 9, p. 415.]
In view of this changed attitude of the utilities and the settled conviction that the utilities are their chief defenders, these utilities have gone to great lengths in trying to convince the public not only of the need and value of the regulatory commissions but that this method is the one that guarantees the public the best and surest protection with reference to rates, service, etc. For example, as we have explained elsewhere, an elaborate and labored report, costing many thousands of dollars, is prepared for the utilities by Murray and Flood, a firm of engineers, arguing at great length that “privately owned and regulated public utilities are superior to publicly owned and operated utilities.” [Exh. Pt. 2, p. 630 ff.]
Why the Utilities Defend Regulation
In defense of regulation and the regulatory commissions the utility corporations are at great pains to emphasize the following matters:
(1) No Watered Stock. Under regulation, according to the contention of the utilities, no such thing as watered stock or the inflation of capital accounts is possible. We read in an article under “Demagoguery Versus Facts” that “for years certain standardized terms: ‘extortionate rates”: and ‘swollen profits’: and `watered stock,’ and ‘Wall Street,’ and ‘bloated plutocrats’ had been the rhetorical Roman candle kit of every demagogue. There was no counter-emphasis upon the facts, namely:
“(a) That public utility companies’ rates are fixed by regulatory authority … which restrict earnings to an amount sufficient only to cover operating costs and a fair return on the fair value of the company’s property.
“(b) That `swollen profits’ are impossible since the company keeps its books as prescribed by regulatory authority and reports under oath its income from all sources, its rates being always subject to reduction if its net income exceeds regulatory sanctions.
“(c) That under regulation `watered stock’ is a term of no significance in relation to a company’s rates and earnings (or in relation to its capitalization, so far as users of its service are concerned), since only fair value of the property and not capitalization-neither face value nor market value of stocks and bonds: is taken into account in rate-making.” [Exh. Pt. 2, p. 147.]
Over and over again this idea that regulation has protected the investor and the public against the evils of watered stock or the inflation of capital accounts occurs. We read:
“There is no such thing, can be no such thing, as so-called “watered stock” in a utility company under commission form of regulation.” [Exh. Pt. 2, p. 729.]
In previous chapters we have referred to the statement that “there is not enough water in the public utilities in Missouri to wash a baby’s face”; [Exh. Pts. 5 & 6, p. 277.] to the complaint against school textbooks because they said that the utilities water their stock; [Idem, p. 341.] and to the arguments of Dean Heilman and others to the effect that even if there were any inflations of capital stock it would not effect rates anyway. [Exh. Pt. 2, p. 37.]
Under this control of the regulatory commissions we are told that “all the water of the Atlantic would not affect rates under modern utility regulation.” [Exh. Pt. 2, p. 37.] And, again, “even were a utility to be loaded to the guards with stock issues in excess of valuation, it would not have the slightest effect or bearing on the rates for service paid by the customer, as earnings of the utility company are based upon the value of its property; the securities outstanding having nothing to do with the amount the utility is permitted to earn.” [Idem, p. 729.] And this same position is taken by Dean Ralph M. Heilman of the Northwestern University as we have mentioned. [Exh. Pts. 5 & 6, p. 493.]
(2) No Excessive Rates. It is also argued by the utilities that regulatory commissions protect the public from excessive rates. “Rates are fixed by regulatory authority,” we are told,…. which restrict the earnings to an amount sufficient only to cover operating costs and a fair return on the fair value of the company’s property.” [Exh. Pt. 2, p. 147, and other references as above and elsewhere.]
(3) No Excessive Earnings. It is also contended by the utilities that regulatory commissions prevent the utilities from receiving excessive returns. [See References above.]
Indeed we are told that the utilities earn no profits at all, in the usual sense of the word:
“A grocer, butcher, dry goods store-man, manufacturer, etc., makes a profit. He has an article to sell; he takes the price it costs him; adds to that a charge known as the overhead, a proportionate amount of his rent, light, heat, interest on his investment, clerk, or other labor charge; then he adds to that a certain sum which is his own profit. He does that with each article.
“But in the utility industry it is entirely diffe
rent. There is no profit charged on a telephone call, a kilowatt hour of electricity, a cubic foot of gas, or an electric railway ride. Instead of charging a profit on its sales of service the utility makes no profit. That charge, common to every other business, is eliminated.” [Taken from the handbook by the Illinois Committee on Public Utility Information: Exh. Pt. 2, p. 728.]
The same idea is found in the writings of the Missouri Committee on Public Utility Information.” [Exh. Pts. 5 & 6, p. 728.]
Regulation a Means of Combating Public Ownership
Regulation is regarded not only as a buffer, a means and method of protecting the utilities from attack, but, even more, it is considered by them as a means of combating public ownership. In the proceedings of the National Electric Light Association convention of 1926 appears an article under the heading “State Regulation Through Commissions Urged as a Method of Combating Public Ownership and Operation.” This appears in the form of a report of the Public Policy Committee of the National Electric Light Association, of which no less a person than Martin J. Insull was chairman. [Exh. Pt. 1, p. 139.] We have already seen how the utilities have made excellent use of the reports of the committees on public ownership and operation, gotten out by the National Association of Railway and Utilities Commissioners, which, of course, are distinctly favorable to private ownership and against municipal or public ownership. In fact, these reports are quite partisan and distinctly propaganda material against public ownership. [For the 1921 report see Exh. Pt. 2, p. 558. A similar report for 1920 will be found in Exh. 651, Pt. 2, p. 707.]
Chapter 66: Pinchot’s Plan for Pennsylvania
The War on Regulation
Governor Pinchot’s plan for Pennsylvania is not for public ownership. It is rather an effort to develop a more effective plan for the regulation of utilities.
Governor Pinchot has been at great pains in his speeches and writings to make clear this distinction between his plan and the plans in other states where public ownership has been the issue. And, what is more, the utility companies, in spite of much of their literature to the contrary, seem to have understood that Governor Pinchot’s plan was not a public ownership plan but merely a regulatory plan.
So the war on Governor Pinchot’s plan in Pennsylvania is not a war on public ownership but a war on regulation. And yet it seems that the utilities have fought Governor Pinchot’s regulation plan as vigorously and bitterly as they have fought public ownership plans in other states.
Governor Pinchot’s Giant Power Plan
In an address delivered at a number of points in a tour throughout the West in 1925, which is presented in full as Exhibit No. 1231 of the hearings of the Commission, [Exh. Pt. 3, pp. 979-86.] Governor Pinchot sets forth in detail his plan with regard to the control of electric utilities. In this connection, Mr. Pinchot pointed out, first of all, that we are facing in this country a powerful and menacing monopoly. “Today I have come before you to warn you,” he said, “of a monopoly infinitely more dangerous, infinitely more imminent, infinitely more pervasive, more powerful than the monopoly of water power alone could ever be, the monopoly, which, if it is to be met, must be met promptly, intelligently, foresightedly, and with a very even balance of mind. [Exh. Pt. 3, p. 980.]
“The purpose of the Giant Power program,” Governor Pinchot went on to explain, “was to prevent this huge monopoly from acquiring industrial, commercial, financial, and political control of the country, [Exh. Pt. 3, p. 982.] and specifically to protect the general welfare of the people and to see that the public interest has from start to finish the first place. [Idem, p. 981.]
“An electric monopoly,” he said, “unless controlled in the public interest will be all powerful in the nation it holds in its grip. It is hard even to imagine the extent of its domination. It would be supreme industrially, because not a wheel could turn except from its own power and with its consent. It would be supreme commercially, because the whole producing and distributing machinery of the world would be dependent upon it for power. It would be supreme in agriculture, because the cost of what the farmer buys, much of the power he will use in farm operation, and the price of what he sells would be under its control. It would be supreme financially, because, through agriculture, industry, and commerce it would have at its mercy the whole banking organization of the country.” [Idem, p. 983.]
Does Not Aim at Public Ownership
In this address, as in all of his public utterances on the subject, Governor Pinchot has been careful to explain that his plan is not a public ownership plan. He says: “It does not aim at public ownership (our italics), but demands that in all plans for electric development the public interest shall receive first consideration.
Through effective public regulation it proposes to break down and put an end to the present unfair discrimination in rates in favor of a few great users of electricity and against moderate and small users by which the latter are forced to pay extortionate charges.” [Exh. Pt. 3, p. 982.]
Thus the Giant Power plan is a plan merely to increase the effectiveness of regulation, to make it real rather than a sham.
A Plan to Make Regulation Real
Governor Pinchot mentions four things which the Giant Power plan proposes in order to prevent this vast monopoly:
First, “the public must have a voice in the plans for the great electrical developments which are just ahead.”
Second, the public must share by rate reductions in the enormous economies which consolidation of companies is already producing, and which the Giant Power plan will. produce in still larger measure.
Third, rates must be based on moneys actually and prudently invested instead of on watered stock or what it would cost to reproduce the properties.
Fourth, “the milking of the moderate and small users for the benefit of the few exceptional big users must stop.”
This in brief is Governor Pinchot’s plan. He has explained it in more detail in a volume he published under the title “Giant Power Survey,” which is reviewed at length by the Pennsylvania State Chamber of Commerce as Exhibit 498 in the hearings of the Commission. [Exh. Pt. 2, pp. 491-500. Copies of the original report could probably be secured from Governor Pinchot at Harrisburg, Pennsylvania.]’
Governor Pinchot also outlined his plan at some length in a letter which he sent in 1927 to the governors of the 48 states. A copy of this letter appears as Exhibit 1957 in the hearings of the Commission. [Exh. Pt. 4, pp. 417-18.] In this letter he again alludes to the serious menace of the “growing electric monopoly” and especially to the inflation of the capital accounts of the holding companies. He says: “The increase in value of stock for 1o holding companies which control Pennsylvania power and light corporations, from 1920 to 1925, averaged 296 per cent. For four of these companies it was over 1,000 per cent, and for one of them more than 10,000 per cent in the five years.” He also refers to the excessive charges for domestic service as compared with other types, refers to the two bills which were being “bitterly contested in the last Congress which pivot on this question and will come before the next Congress,” namely, Muscle Shoals and Boulder Canyon.
And here again Governor Pinchot emphasizes the fact that his plan is not for public ownership. “I am not advocating public ownership,” he says. “I recognize fully that the companies must have fair treatment but I do contend that federal and state governments alike may properly safeguard the small consumer of electricity in his right to pay no more than it costs to serve him with a reasonable profit added. Anything beyond that is extortion.”
Bitter and Vicious Opposition
This plan of Governor Pinchot proposing nothing more, according to his various statements, than a more effective regulation of the electrical industry in the interests of the public immediately encountered a most vigorous and in many respects a vicious opposition. The plan was denounced as dangerous and menacing? A letter was drafted by the Pennsylvania Electric Association and sent to the various public utility companies to be addressed by them personally “to each of the banks and trust companies in the Pennsylvania Bankers Association.” These letters pointed out the dangerously menacing character of the 1g bills that were introduced in the Pennsylvania Legislature in support of the so-called Giant Power proposals espoused by Governor Pinchot. Reference is made to the review of the Giant Power plan by the Philadelphia Chamber of Commerce, and the banks and trust companies are asked to give the matter their closest attention. It is stated that the propaganda for Giant Power is being spread throughout the country at large and that the situation is one in which “the institutional bankers and the electric public utility industry have a common interest.” [Exh. Pt. 3, p. 863.]
“The Menace of Pinchotism”
The reference by Governor Pinchot to the inflation of the stock of certain holding companies was particularly objectionable in the eyes of the utilities, and at a special meeting of one of the utility committees steps were taken to offset the proposed activities of Governor Pinchot and “that the committee prepare a statement showing that the financial structures of the holding companies have no effect upon rates,” etc. [Exh. Pts. 5 & 6, p. 382.] Mr. Pinchot’s plan is referred to as “The Menace of Pinchotism.” He and his plan are said to be a very great menace in public life; and that “unmistakable approval” is given to the efforts of the Pennsylvania organizations of the utilities for “what we are attempting to do to combat Pinchotism.” [Exh. Pt. 3, p. 988.]
“One can not underestimate the damage that would be done to the nation as a whole if this (the electrical) industry were subjected to an unwarranted political setback such as is being launched by Governor Pinchot of Pennsylvania,” says Major J. H. Buell of Tulsa, Oklahoma, Vice-President of the Oklahoma Power Company, in an address in November, 1925, on “Superpower Versus Giant Power.”
“Indefensible,” “Revolutionary,” “Destructive”
The plan of Governor Pinchot is then outlined in detail and each particular feature is shown to be impractical and destructive. “The Pinchot proposal,” he concludes, “is indefensible politically, commercially, economically, and from all engineering standpoints. His scheme is revolutionary and would be blighting, not only to the electric industry in Pennsylvania but to other industries there.”
Those who propose such schemes as this are denounced as ones “who prey upon ignorance or mass prejudice, arraying one class against another, seeking in the resultant discord to promote their own selfish political advancement.”
As a matter of fact, Governor Pinchot’s plan for a giant power system is not a public ownership proposal at all as we have explained, but rather an attempt to devise a more effective means of regulating, co-ordinating, and controlling the electrical industry in the State of Pennsylvania in the hope that by such methods better service may be secured. And yet in spite of this fact the utility interests regard Governor Pinchot’s proposals as dangerous in the extreme and regard those who are proposing such plans as self-seeking individuals determined to wreck the government and as, therefore, being enemies, not only to the electrical industry but to American institutions as a whole.
“There are those,” says Major Buell, “who, repudiated by their own legislatures, seek to carry their propaganda to the people, evidently determined to wreck the existing machinery of government, if necessary; in order to force their dangerous theories on a public that must pay the cost. So in defending our industry it is well for us to bear in mind that these self-seekers are not only enemies to us but to American institutions as well.” [Exh. Pts. 5 & 6, pp. 81 to 85.]
Denounced as Public Ownership
In spite of Governor Pinchot’s repeated and careful statements to the contrary, the utilities in. their opposition branded Governor Pinchot’s plan for Giant Power as a public ownership proposal. And as such, of course, it came in for all of the denunciation which the utilities heap upon the advocates of public ownership.
In this connection, it is stated that Governor Pinchot’s “main object was to bring about state ownership so that when the time came government ownership could be effected without any change in the bills.” [Exh. Pt. 3, p. 617.] The report of the Pennsylvania State Chamber of Commerce declared that the purpose of the Giant Power bills was thinly disguised, “providing for incorporated electric districts, annulment of charter rights of present companies, formation of mutual companies, the making of common property of existing systems … as but steps to an entirely new status for electric companies first under strict governmental control, then soon under governmental ownership.” (Our italics.) [Exh. Pt. 2, p. 497.]
A Scurrilous Attack
Perhaps the most vicious of all the attacks upon Governor Pinchot and his plan was contained in a publication, which appears as a part of the record in Parts 5 and 6,. page 367, of the Commission’s hearings, in which an effort is made to discredit Governor Pinchot on the ground of his alleged political ambition, saying:
“Governor Pinchot hit upon an idea to assist him to ride upon a thunderbolt into the White House. He would take away ownership and operation of electric light and power from 2,500,000 Americans who own securities of light and power companies, deprive the states of their constitutional rights to exercise their police power in regulation of these public utility companies and turn over ownership of electric light and power to the politicians.” (Our italics.) [Exh. Pts. 5 & 6, p .367.]
An effort is made to further discredit Governor Pinchot by claiming that he has eagerly swallowed “the political wooden minnow of public ownership,” and that this minnow was “cast before him by Mr. Carl D. Thompson, Secretary of The Public Ownership League of America, a crude and most unskillful fisherman.” The statement further adds that:
“Governor Pinchot has adopted even to phraseology and adjectival exaggeration the public ownership platform of the Public Ownership League of America, as written, promulgated, and preached by the high priest of public ownership, Carl D. Thompson. Inasmuch as Governor Pinchot has been pleased to make Mr. Thompson’s public ownership platform, even as to phraseology, his platform, now that Carl D. Thompson, socialist, single-taxer, communist, Non-Partisan Leaguer, has written a platform for a candidate for the Republican nomination for the important office of President of the United States, it may be pertinent to inquire into just who Carl D. Thompson is.” [Exh. Pts. 5 & 6, p. 368.]
Then follows a long tirade which is not pertinent to the present discussion, the point here being this truly unwarranted and unfair effort to discredit Governor Pinchot and his plan which, as above stated, has had absolutely nothing to do at any time, either with Carl D. Thompson or The Public Ownership League, or public ownership. And the extreme unfairness of this kind of statement is further shown in the testimony of the representatives of the utilities themselves in the records of the hearings when they have themselves definitely stated that Governor Pinchot’s Giant power plan was not in any sense of the word a public ownership proposal.
The Truth Admitted
Walter H. Johnson, President of the Philadelphia Electric Company, in reply to a question by judge Healy, admitted “that the Giant Power proposal had nothing to do with public ownership.” [Pt. 3, p. 323.]
This rather astonished Judge Healy and led him to inquire: “Aren’t you mistaken now about that?” To which Mr. Johnson replied: “No; not at all:’ And then after some further discussion, Judge Healy again asked: “But I understood you to say the Giant Power proposition had nothing to do with public ownership?”
“Answer: It hasn’t anything to do with public ownership, Your Honor…. Those Giant Power bills are just simply enabling acts to permit us to do the things which the Governor desired us to do through his Giant Power proposition. In other words, get all the generation under one company.
“Question: Why were you opposing it?
“Answer: Because it is a bad thing. It is impractical. In the first place, we have to spend a million dollars a year for cables to carry our current from the Conowingo generating plant here, because it does not pay you to operate an economical generating plant near the source. Then the government bills call for transmission companies, and then they call for a distributing company. Now there are three profits.
“Question: Is that distributing company to be public ownership?
“Answer: No; private corporation. “I have never heard the Governor accused of being against private ownership or in favor of municipal ownership; in fact, I think he has made statements to the contrary.” (Our italics.)
Just as we have stated above and as the record shows. But consider this definite statement of Mr. Walter H. Johnson in connection with the article referred to above, in which such an effort is made to discredit Governor Pinchot on the ground of his belief in and support of public ownership.
Judge Healy inquired still further in trying to clear up this matter, and finally asked:
“Why did you say a while ago that the Giant Power proposition had nothing to do with the municipal or public ownership of distribution? Now you say you do not know.
“Answer: I was speaking from memory and right up to this minute I haven’t any thought or any conception that Governor Pinchot in his Giant Power Report or in his bill had any desire to interfere with private corporations. (Our italics.) He wanted to bunch us all together and have it a giant pool. That is my understanding.” [Pt. 3, p. 324.]
Further Judge Healy asked:
“Do you know whether there was a provision in the report that at the end of fifty years the commonwealth or permittee designated by it could take over and operate the works upon payment of moneys prudently invested?
“Answer: I understood that was in the report.
“Question: Wouldn’t that be government ownership and operation?
“Answer: I do not think so. They do not necessarily have to take it over. We are operating under the water power act down in Conowingo.”
And still neither Judge Healy nor Commissioner McCulloch seemed to be satisfied. For Judge Healy remarks:
“It seems to me, if the Commission please, that it is apparent that Mr. Penrose’s report on the matter that the proposal or some of its aspects at least provided for what might be called government ownership or operation.
“Commissioner McCulloch: It would seem so to me from the abstracts you have read, and I think that the witness has stated that Mr. Penrose knows more about it than he does. At any rate, you are opposing that proposition very vehemently?
“Answer: Oh, yes?” [Idem, pp. 323-25.]
Earlier in the hearings Mr. Johnson had stated quite definitely that the Giant Power proposal did not involve government or municipal ownership or operation. He insisted that his committee and association had not opposed municipal or public ownership, saying “there has been no reason to oppose it. There has been no such legislation in Pennsylvania to my knowledge,” and further explained that “Governor Pinchot’s Giant Power bills were enabling acts to permit us to lawfully do the things he would like to see us do.” [Pt. 3, pp. 313-14.]
Vigorous and Vehement Opposition
While there was some dispute as to whether the Giant Power program of Governor Pinchot provided for or led to public ownership or not, there was no question as to the attitude of the utilities towards the program. Mr. Johnson of the Philadelphia Electric Company admitted that the utilities were “opposing that proposition vehemently.” [Idem, p. 325.]
It was carefully analyzed by various authorities of the utility companies and denounced by them as “indefensible, politically, commercially, economically, and from all engineering standpoints.” [Exh. Pts. 5 & 6, p. 84.]
The utilities used all of their usual methods in securing the defeat of these measures. After considerable pressing Walter H. Johnson admitted that the companies spent approximately $100,000 in the campaign. [Pt. 3, p. 317.]
The utilities were especially active and effective in their work in the State Legislature. And yet, when questioned as to just how the money was spent in that connection, their witnesses seemed to have lost their memories. Even the records were missing-to such an extent that Judge Healy was led to exclaim: “So that the record on that subject is as blank as your memory.”
Answer: “Yes, Sir.”
Mr. Johnson of the Philadelphia Company insisted that “not a penny of the money was spent in any way or in any connection with municipal ownership, or opposing it, and that every penny of that was spent honorably and lawfully.” (Our italics.) [Pt. 3, p. 315.]
This led Judge Healy to inquire a little more closely into the sources from which the money came and to whom it was paid. But this Mr. Johnson could not tell. Whereupon Judge Healy inquired:
“Then answer my question. If this money was spent honorably and lawfully, would there be an objection to telling who got it and how much?
“Answer: Yes, sir; there would.
“Question: There would, although it was honorable and lawful? Answer: Yes, sir.
Question: But you are unable to tell anything about where any of this money went?
“Answer: Correct.
“Question: Beginning the first one in December, 1922, and your mind is just as much of a blank as to the one of March 18, 1927?
“Answer: That is correct.”
And so Mr. Johnson insisted that he did not know who got the money that he spent or how much they got. And yet he insisted that it was all honorable and lawful.
“Judge Healy further asked: Wasn’t some of that money paid to people in that way that were to go before the Legislature and into the committees in opposition to these bills?
“Answer: I should think so, but I would not say so.
“Question: Would that be perfectly honorable and lawful?
“Answer: It would.
“Question: Would a person paid by your association go to the Legislature and oppose a bill without disclosing the fact that he was being paid?
“Answer: Of course. (Our italics.)
“Question: That would be perfectly honorable and lawful?
“Answer: Yes, sir.
“Question: I want to get at your definition of what is honorable and lawful: just exactly what the word means. Does it mean that it is honorable and lawful for a man under pay by your association to go before a legislative committee in opposition to a bill you are against without disclosing the fact that he is paid?
“Answer: Well, that is honorable and lawful.” [Pt. 3, pp. 316-317.]
Thus by these perfectly “honorable and lawful” methods the utility companies succeeded in defeating Governor Pinchot’s proposed Giant Power system.
Meanwhile, Governor Pinchot published a book under the title The Power Monopoly: Its Makeup and Menace, which was a detailed statement showing the financial affiliations and control of some 4,362 electric light and power companies in the United States. Governor Pinchot in this book makes the statement that in 1926 more than four-fifths of all the electric power generated in the United States was controlled by 41 holding companies; that of these 41 holding companies, 35 are dominated by six interests: General Electric, Insull, Morgan, Mellon, Byllesby, and Doherty; that these interests controlled two-thirds of the electric power produced in the country in 1926.
Commenting on this publication of Governor Pinchot, the New York Rochester Times-Union of February 25,1929, had this to say:
“Before a condition can be corrected it must be understood. Giffford Pinchot makes an important contribution to such understanding in thus assembling data regarding the growing dominance of a handful of great financial interests in the vast electric power field.” [Exh. Pts. 10-16, pp. 783-84.]
Thus it seems that the utilities fight just as hard and just as desperately against a really effective plan of regulation as they do against municipal or public ownership. To them there is no distinction between a plan that will really regulate utilities and one that would have the public own and operate them. Both are unsound, intolerable, destructive, revolutionary. Both are a menace, destructive of American ideals and institutions. Both must be beaten at whatever cost. They want neither public ownership nor regulation if the regulation is really going to regulate.
Chapter
67: The Breakdown of Regulation
Movements in Many States to Abolish the Commissions
While the utility corporations have come to regard regulation and the regulatory commissions as their chief defense the record shows that there has been a steady increase in the dissatisfaction on the part of the public with the regulatory commissions, and a growing and insistent demand in state after state for their abolition. Indeed we find in the records confessions on the part of the representatives of the utilities themselves that regulation has broken down.
At one place we are told that in at- least six states more or less active efforts are being made to break down state-wide regulation of utilities and revert to local regulation; and that this agitation “was particularly violent in the State of New York.” [Exh. Pt. 2, p. 738.] In another place we are told that “efforts are being made in 14 states to abolish the regulating commissions.” [Exh. Pt. 4, p. 415.] Complaint is made that” in several states the Leagues of Municipalities are actively engaged in seeking the abolition of the state utility commissions and the return of control of the utilities to local municipalities.” [Exh. Pts. 5 & 6, p. 898.] In Missouri we are told that “in the 1920-21 session of the Legislature there were 27 bills introduced looking to the complete abolition of state regulation…. In 1922 and 1923, 25 such bills were introduced.” And then, as showing the effectiveness of the work of the state organization of the public utilities “in 1924 and 1925, when the committee had been in operation for three years, only one bill was introduced to abolish the regulatory body.” (Our italics.) [Exh. Pts. 5 & 6, p. 601.]
Narrow Escape in Tennessee
In Tennessee “a violent assault on the public utilities commission was repelled,” we are told. Both the candidates for governor in that state had declared for the abolition of the commission. The utilities finally succeeded in persuading “the legislature to a policy of procrastination,” so that the measure did not come up before the recess. After the recess, however, and “very much to the surprise of our forces, the governor sent in a special message, urging the immediate repeal of the act, and so complete was his control of the house that the repeal went sailing through by a vote of 72 to 14.” [Exh. Pts. 5 & 6, p. 636.] However, the concerted activity of the public utilities saved the commission in the Senate.
In Missouri some of the ablest men in the constitutional convention, according to the record, introduced a proposal to abolish the public service commission. [Idem, p. 537.]
In Kansas “total abolition of the public service commission is being advocated in several quarters of the state, the feeling being that the Kansas regulatory body does not sufficiently protect the interests of rate payers but is controlled or influenced to some degree by the public service companies.” [Exh. Pts. 5 & 6, p. 725.] And both in Kansas and Missouri the movement to abolish the commission had the support of many newspapers. [Idem, also p. 601.]
“State regulation,” we are told, “is under very heavy fire in Illinois, Indiana, Ohio, Massachusetts, and New York.” . . . In Missouri it was saved by “only one vote in the house of representatives and that vote was a reconsidered one,” so close it came to being abolished. [Idem, pp. 557-58.]
A Popular Movement
This movement for the abolition of the regulatory commissions seems to have taken on the nature of a popular movement in some instances. For example, we are told that “The Southeast Missouri Drummers last year passed a resolution advocating the abolition of the commission.” [Exh. Pts. 5 & 6, pp. 530-31.] Again, the International Typographical Union at its convention in Fort Wayne, Indiana, in 1928, adopted resolutions “asking for the abolishment of the state utilities commission.” [Idem, p. 764.]
A very outspoken opposition to the regulatory idea came from Willis J. Spaulding, Commissioner of Public Property, and Manager of the Municipal Electric Light and Power System in Springfield, Illinois; also vice-president of the Illinois Municipal League, who said, as found in the record:
“I would like to say in passing that regulation of utilities by commission in Illinois has become a scandalous and almost tragic failure since the revelations of the campaign contributions that have been made to Senator Smith and, of course, Mr. Copley contributed also to the campaign fund $25,000 which he testified to, but the cities of Illinois no longer have any confidence in regulation by our commission on account of the general knowledge of these contributions by large utility corporations.” (Our italics.) [Pt. 2, p. 11.]
Utilities Themselves Complain of Breakdown
Meanwhile, the utilities themselves were complaining that the interference of the courts was rendering regulation difficult and uncertain. Mr. Sheridan of the Missouri Committee on Public Utility Information writes to one of the utility corporations: “I beg to refer you to the bulletin of this committee, No. 23, Volume 2, June 24, 1922, to the story `Courts, Not Commissions Are Finally Arbiters of Public Utility Operations.'” This, Mr. Sheridan seemed to think, was “indirect support of the public service commission.” Similarly, Preston S. Arkwright, President of the Georgia Power Company, pointed out that:
“My observation and experience with commissions and their decisions is that the state regulatory commission does not fix the rule of reproduction value new on present day prices as the dominating influence in fixing the value of property for rate making. . . . That rule has been evolved from decisions of the Supreme Court of the United States, and then subsequently adopted, and apparently reluctantly, by the state regulatory bodies. The objection, if objection there be, to the method of arriving at the value for rate making purposes of the property of utility companies, is an objection to the construction of the Constitution of the United States by the Supreme Court of the United States and is not a valid ground of dissatisfaction of the state regulatory commissions.” [Pts. 18 & 19, p. 174.]
Thus the utilities seem to realize what others have been urging, that in the final analysis the ultimate basis of regulation is determined, not by the utility commissions but by the decisions of the United States Supreme Court. Commenting upon this situation, Mr. Sheridan of the Missouri Committee, writing to L. E. Gettle of the Wisconsin Railroad Commission; says:
“By insisting upon “reproduction new,” issuing securities, cashing in, this man (the man who wants immediate returns), aided legally and logically by the courts is breaking down state regulation.” (Our italics.) [Exh. Pts. 5 & 6, p. 457.]
In one of the publications appearing in the exhibits the terrific cost of litigation in rate cases is pointed out. In the St. Paul and Minneapolis street railway situation it is stated that the cost of litigation, inquiry and fees of city experts was $1,077,593. [Idem, p. 488.]
And, finally, we have the confessions of some of the prominent utility men themselves to the effect that it is not regulation that brings down rates, but competition. For example, Horace M. Davis of the Nebraska Information Bureau, in one of his letters says: “Think as you will, it is competition that brings the price down, and not regulation.” [Pt. 11, p. 116.]
Mr. Sheridan seemed to realize the same thing when, in replying to Thorne Browne in regard to matters of this kind, he pointed out that certain municipal plants in Missouri had reduced rates far below those of private plants under comparable conditions and in essentially the same territory. “Reconcile these, if you can,” he says; “I can’t. I don’t pretend to.” [Exh. Pts. 5 & 6, pp. 306-07.] Here is at least an admission that municipal ownership brought down rates where regulation failed to do so.
Thus it would seem that in spite of all of the efforts that have been made by all concerned in maintaining and supporting the theory of regulation and regulatory commissions, the conviction has steadily gained ground that the system does not and, under existing conditions, probably can not protect the public. And even the utility men themselves, some of them, are beginning to appreciate the situation, especially with reference to the part that the United States Supreme Court has played in its decisions affecting the valuations which serve both as rate base and as a basis for purchase.
Chapter 68: Who Rules American and How?
No such vast and far-reaching plan and purpose as that of the utility corporations of America could be carried out without a very extensive influence and control of the political affairs of the nation. And one of the most challenging revelations of the findings of the Federal Trade Commission is the political domination which these plans assume and necessitate.
If a utility company is to operate at all, it must first secure a franchise. Franchises must be gotten from the City Council. If a utility company is to operate freely within a state, favorable laws must be secured to that end. Such laws are secured from State Legislatures. If utility corporations are to escape severe and restrictive regulation, the utility commissions of the states having these matters in charge must be friendly and agreeable to the utilities. If the utility corporations are to escape harmful investigations and restrictive national legislation, Congress and the Federal Government must be friendly and favorable. Whichever way they turn and whatever action may be necessary for their free operation and development and for the carrying out of their plans, the utilities are faced with the absolute necessity of political action.
Municipal Politics and Utility Influence
In preceding chapters we have reviewed at some length the various activities of the utility corporations in their efforts to influence and control municipalities through their City Councils and otherwise. In the chapter dealing with the activities of The Foshay Company, [Chapter XXX, p. 249 ff.] for example, we have reviewed the efforts by which this company undertook to influence city officials and City Councils in their efforts to acquire municipal light and power plants. These efforts are but typical of similar activities on the part of the utility companies generally.
So notorious have been the efforts of utility companies in this respect that it has become generally understood that they are the source of much of the political corruption in the municipal government of today. As we have pointed out, bitter complaint is made by some of the utility companies against the textbooks used in the public schools on the ground that in some instances they make statements to the effect that frequently the private ownership of utilities in a community leads to the corruption of public officials. In one case the statement is made in one of the textbooks that “behind the boodle alderman one always finds the respectable banker or financier.” [Exh. Pt. 2, p. 449.] Again, it is argued that political corruption comes by way of the exploitation of public franchises by private corporations. [Exh. Pts. 5 & 6, p. 1018.]
A review of the preceding chapters will disclose the extent to which the testimony has shown the activities of the private utilities in this field of municipal politics.
State Legislatures and Legislation
The freedom of action and development of the utilities and their plans depend upon favorable state legislation almost as much as upon favorable action on the part of municipalities. Naturally, therefore, we find, according to the records, that the utilities have been especially alert, active, and effective in watching state legislatures, in promoting legislation that would be favorable to their interests, and in defeating legislation that would be hostile to them.
In Oklahoma
In Oklahoma, for example, the Utilities Association had as one of its especial lines of work “co-operating with legislative and regulatory bodies.” The Association during the sessions of the legislature, so the report reads, is active in “exposing destructive measures which, if enacted, would prove disastrous not only to public utilities but to business in general. The Association, through special committees and its officers and members, appears publicly before regular committees of the legislature and presents views on pending legislation.” (Our italics.)
Not only do these committees watch the work of the legislature and its committees during the session. They are active in these matters before the legislature meets. The report above referred to goes on to say:
“Before opening of a legislative session the Association appoints committees to ascertain the needs of the industry in connection with constructive measures. These are framed with the aid of some of the best lawyers and presented to the legislature.” [Exh. Pts. 5 & 6, p. 52.]
The Indeterminate Permit Law
One of the state laws in which the utility companies have been especially interested in a great many different states was the so-called “indeterminate permit” or “revocable permit law.” The records show that in many states the utilities were especially active in trying to secure the passage of this kind of legislation and in many cases they were successful.
Reporting on their work in 1928, the Manager of the Oklahoma Utilities Association, says: “Outstanding in the history of the utility industry for 1927 was the revelation of, the fact that the Oklahoma revokable permit law” (generally known as the indeterminate permit law), “adopted in 1925, had so vindicated the claim of its sponsors that efforts of a few legislators, who failed to realize this fact, were unable to effect the repeal of this much-debated measure. [The law has since been declared unconstitutional by the Supreme Court of the State.] … The Association carried on a vigorous educational campaign in support of this measure, both before and after its enactment, and has continued the same since the repeal efforts.” [Exh. Pts. 5 & 6, p. 62.]
Similarly in Missouri the utilities were active in supporting the indeterminate permit law. [Idem, pp. 340-41.]
Thus the utility corporations are openly boasting of the fact that this particular law was sponsored by them and supported by them in the legislature which finally enacted it and was still supported by them through their various publicity agencies during the time that efforts were made to secure its repeal.
Watching the Illinois Legislature
Mr. Robert V. Prather, Secretary of the Great Lakes Division of the National Electric Light Association, testified of his activities in behalf of the utilities in connection with the work of the Illinois State Legislature. Mr. Prather identified a letter which he wrote to Mr. M. H. Aylesworth in January, 1921, in which he said: “The Legislature is in session here and it looks like a very stormy session, and I could use very handily a little J. Walker to very good advantage, and it occurs to me that you could do me a great favor if the first time you are coming West you would call on a friend of mine in New York and bring me a half a dozen.” [Pt. 2, p. 107. See also Exh. Pt. 2, p. 170.] In a later letter Mr. Prather wrote that he “would have to have something to `sweeten up the palates’ of the legislators.” [Exh. Pt. 2, p. 170.] Mr. Prather insisted that he had never given a “bottle of liquor to a member of the Illinois Legislature in my life.” However, he admitted that he was writing to Mr. Aylesworth on utility business. The letters above referred to Mr. Prather undertook to destroy and, in fact, thought he had destroyed them, and so reported to Mr. Wooden of the Federal Trade Commission. He seemed to have overlooked the ones above referred to and they were introduced in evidence: Some discussion arose between the members of the Commission as to whether these letters should really have been read into the record, but Commissioner McCulloch stated that since they had to do with “influence brought to bear on the Legislature of the state with respect to pending legislation,” they came within the purview of the senate resolution and, therefore, were introduced.
When asked as to what legislation was pending in the Legislature in 1921, in which the utilities were interested, Mr. Prather testified that there was nothing at that time pending but that he presumed that there would be “when you have men like Mr. Spaulding and Jim Andrews running over the state.” [Pt. 2, p. 107.]
[The Mr. Spaulding referred to here is Willis J. Spaulding, Commissioner of Public Property in Springfield, Illinois, mentioned in previous chapters, who is at the head of the municipally owned light and power plant in that city and has always been active in the Illinois League of Municipalities, supporting legislation urged by that association. Jim Andrews here referred to is the Mayor of Kewanee, a close friend to Mr. Spaulding, also a member of the Illinois League of Municipalities and active in promoting municipal ownership legislation and movements in Illinois.]
In this connection, it is interesting to note that this Great Lakes Division, of which Mr. Prather was the Secretary, spent $550 printing pamphlets bearing on the indeterminate permit law, a matter that was being promoted by the utility interests in the Illinois Legislature at that time. [Pt. 2, p. 112.]
In New Jersey
The New Jersey Utilities Association made arrangements, as other state organizations of a similar nature did, to “keep track of legislation in the state.” It paid $10 a year for copies of all bills introduced in the Legislature and received the daily service from the Legislative News. Mr. Riggin, counsel for the association, is the one charged with the duty of “opposing legislation” that is not approved by the utilities. [Pt. 7, p. 57.] In this connection, Mr. Roth, Secretary of the New Jersey Utilities Association, in one of his letters, urges a Mr. Poucher, President of the Atlantic City Sewerage Company, and also connected with the Broadway Savings Bank, to remain a member of the Association because it has done so much good for the utilities generally and especially in the matter of opposing and preventing adverse legislation from getting through. [Idem, p. 59.]
As indicating the definiteness with which the utility corporations sought to prevent the passage of bills in the Legislature, which they thought were hostile to their interests, may be cited the case of Bill No. 6o introduced in the State Legislature of New Jersey in 1926, proposing to abolish minimum and service charges of the utilities in that state. “Everything possible will be done to prevent the passage of this bill,” writes the secretary in this connection. [Idem, p. 63.]
In Maine
A striking and significant instance of the way the private utility companies use their influence in controlling or attempting to control the political situation in a state was brought out in the hearings on March 16, 1932. At that time Mr. Frank Buckingham, one of the examiners of the Commission, testified that the New England Public Service Company, which was closely connected with the National Electric Power Company, a subsidiary of the Middle West Utilities Company, an Insull holding company, had spent $200,000 in 1929 to secure a favorable vote in a referendum in the State of Maine on a measure to permit export of surplus hydroelectric power from the state. A bill to this effect was passed by the Maine Legislature in 1929 and in September was submitted to a referendum vote, in which it was defeated by a narrow margin. In reporting to its stockholders the company explained that since it believed the measures would be of great benefit to the company, it had decided to conduct a state-wide campaign in favor of the bill.
The funds for conducting this campaign were derived from the public service company’s profits on the sale of 3,000 shares of common stock of the Central and South West Utilities Company. These shares were bought in 1926 by the New England Company for $35 a share and were sold for $138.88 per share. In the purchase of $11,000,000 worth of Middle West Utilities stock by the New England Company Mr. Buckingham testified that the Middle West Company had made a profit of $1,227,994. [From press reports on the hearings of march 16.]
In Nebraska
Mr. Horace M. Davis of the Nebraska Information Bureau told of the manner in which the utilities took part in preventing the passage of certain legislative measures and in promoting the passage of other measures in the State Legislature of Nebraska.
In one of his letters he referred to a severe blow that the utility companies had received in the Legislature in the passage of a certain hydroelectric power bill. This bill “provided for organizing a district that might have been large or small, with the idea of bonding that district for the development of a hydro-generating plant.” [Pt. 11, p. 93.] This bill, Mr. Davis said, had been before the Legislature for three or four sessions in one form or another and had finally passed. However, Mr. Davis in a letter to Mr. Sheridan said that he thought he might be able to undo it. At any rate, according to the testimony, he said that he wanted “the damned thing killed.” [Idem.] And, finally, according to Mr. Davis’s letters, he succeeded in defeating the measure. He writes to Mr. Sheridan that he “had won his big fight in the Legislature, defeating a wide-open water power bill.” [Idem, p. 94.]
The utility companies had a Mr. George A. Lee who appeared before the Nebraska Legislature against projects that permitted municipal ownership and operation of electric utilities. [Pt. 11, p. 96.]
The Nebraska utilities were also active in opposing what is known as the “tri-county bill” which was before the Nebraska Legislature. This was a bill that would permit the people of Adams, Kearney, and Phelps counties to form an irrigation district in co-operation with the Government Reclamation Service in connection with which they were to produce and distribute electric power. [Pt. 11, pp. 100-101.] Strangely enough, Mr. Davis testified that he personally favored the tri-county bill. [Idem, p. 102.] And contrary to the above evidence, he insisted that while the utility companies were interested, they took no part in opposing the measure.
In the summer of 1919 Mr. Davis had taken charge of an organization known as the New Nebraska Federation which had been set up for the purpose of counteracting the efforts of the Non-Partisan League. This League, according to Mr. Davis’s testimony, had attempted to control the election of 100 delegates to the constitutional convention that met in December of that year, [Idem, p. 70.]
In Wisconsin
As an illustration of the way the utility companies have interfered with and blocked legislation, mention may be made of the following matter in Wisconsin. In 1921 a measure was introduced by Representative Skogmo, known as the Skogmo Bill, Senate No. 389. This measure, it seems, had been introduced in the previous session. It provided for a determination of the state on the policy of public ownership in the utility field. Upon the introduction of this bill the representatives of the utilities became active in preventing its passage, the Wisconsin Public Utilities Association wrote to various parties describing the bill and urging active opposition against it. “I think this bill one of the most vicious ones that will appear in this session,” writes the Secretary of the Wisconsin Public Utilities Association to Mr. J. P. Pulliam of Milwaukee:
“And it is particularly dangerous by reason of the fact that it passed two years ago, was vetoed by the governor, returned to the legislature, and nearly passed over his veto.” [Pt. 17, p. 24.]
Similar letters were written, which indicated that the Skogmo Bill provided for public power districts and was objectionable to the power companies in that as well as other respects. George B. Hudnall of Milwaukee was one to whom the utilities wrote and he, in turn, took up the fight and wrote to others in opposition to the measure. Mr. Hudnall talked with Governor Philipp about the bill, according to the correspondence, and he had written to “Fred Holmes at Madison regarding it and has been assured by Holmes that the bill will be killed.” Further Mr. Hudnall wrote:
“If the administration is against it, it would seem that it ought to be killed in the Senate; if not, it ought to be vetoed when it gets to Governor Blaine. This, of course, is strictly confidential.”
Mr. Hudnall then goes on to say that his views on the bill which was introduced two years before were embodied in Governor Philipp’s veto. [Pt. 17, p. 25.]
A letter from the Madison Railways Company in 1924 indicated that they were “against every one of the proposed amendments (providing for home rule in the state constitution) as we believe tampering with our fundamental law in this insidious way is not only detrimental to the best interests of the state but is absolutely destructive of everything that we consider vital to our stability and welfare.” And then follows the appeal:
“I trust you and your associates will use your best endeavors, as we certainly shall, to defeat any and all amendments conferring larger powers upon our legislative bodies.” [Pt. 17, p. 25.]
In Georgia
Another striking example of the way the utilities organized their forces to defeat enabling legislation sought by municipalities is found in the records regarding the Municipal League of Georgia. This League had certain bills which would have enabled the municipalities of that state to unite in developing a public power system. The utilities organized a strong lobby against these measures and succeeded in defeating them. [Pt. 28, p. 66ff.]
One of the men prominent in securing these results was afterwards employed for many years as a lobbyist in the Legislature and was very successful in his efforts, according to the record. [Idem, pp. 67, 68, 70.]
In Other States
Mr. J. S. Thomas, one-time director of the Alabama Utilities Information Bureau, appeared before the Legislature of the State of Mississippi, speaking on the relation between agriculture and industry. He was there at the invitation of Mr. Folse of the State Board of Industrial Development of Mississippi on the occasion of a banquet and annual meeting of that Board. “Men were there from all over the state and they invited the Senate and House to be their guests at this banquet and I spoke at that banquet.” (Italics ours.) [Pt. 7, p. 141.]
John A. Reed of Iowa was paid $125 in 1926 for “securing information on bills pending or proposed at that time in the Iowa Legislature.” [Pt. 7, pp. 11-12.]
The Iowa section of the National Electric Light Association arranged to have the Public Service Magazine sent to the members of the Iowa State Legislature. [Idem, p. 3.]
In another chapter we have told how the utilities in Missouri defeated a measure intended to enable the farmers in the rural districts near Hannibal to purchase power from the municipal plant at that place and distribute it over their own lines. [Chapter II, p.17.]
Many other references are made to the activities of the utility corporations in the legislatures of the various states, and many will be found in the preceding chapters of this volume. The above, however, will serve to indicate the extent and nature of these activities.
State Referendum Campaigns
In this connection, it is important to note the fact that in a number of instances where matters vitally affecting the utility corporations have been sent to referendum vote in the states, these corporations have been extremely active in their campaigns against such proposals. This was notoriously true in the three referendum campaigns on the water and power act of California which we have described at length in Chapter 44, page 513 ff. The same activities were in evidence again in connection with campaigns on similar measures in Washington and Oregon, which we have described in some detail in Chapter 45, page 5,29 ff.
Influencing State and Federal Commissions
In previous chapters we have. cited numerous instances of the activities of the utility corporations in establishing and maintaining friendly relations with the regulatory commissions of the various states. Especially in our chapters on the subject of regulation, namely, Chapters 65 and 67, these matters are discussed. Very naturally, the utility companies, having to deal with the Federal Power Commission in securing their hydroelectric permits, and otherwise, are brought into close contact with that organization. In this connection the Federal Trade Commission undertook to determine whether the utilities had been active in influencing the Federal Power Commission. The testimony on this point has to do with what has come to be known as the “Mysterious Memorandum.”
The Mysterious Memorandum
There appeared in Washington, D. C., and in some of the eastern newspapers during the summer of 1929 a memorandum that was released to the press, the source of which the Federal Trade Commission made every effort to determine, but failed. The witnesses of the utilities in every case positively and definitely testified that they knew nothing about the memorandum, had had nothing to do with preparing it, and Paul S. Clapp of the National Electric Light Association put into the record a statement which he had released to the press at the time, in which he stated very definitely that “the . memorandum was not issued by the National Electric Light Association, by any of its committees, or by any person or organization in its behalf…. The issuing source continues to shroud itself with mystery, refuses to divulge information as to the author, and thus far disavows willingness to assume responsibility for circulation of such a serious accusation.” [Pt. 17, p.18.]
In view of the fact that the Commission could not determine the source of this mysterious memorandum, it was finally not presented as a part of the evidence. However, several witnesses were interrogated regarding the matters contained, and certain things came out in the evidence that are of interest and significance. Among these are the following:
About the time that this “mysterious memorandum” appeared the Buffalo, Niagara & Eastern Power Corporation was negotiating with the Federal Power Commission for certain hydroelectric power rights. Also, about this time a controversy arose between Colonel William Kelly, vice-president of the Niagara Falls Power Company, and Mr. King of the Federal Power Commission, and late in 1928 Colonel Kelly appeared before the Federal Power Commission against certain regulations of the Commission concerning the service contracts and charges thereunder.
About the same time Mr. M. O. Leighton, a consulting engineer in Washington, D. C., working for various utility concerns, including the Electric Bond and Share Company, called at the office of the Power Commission to see Mr. Russell, who at that time had been designated as the solicitor for the Power Commission. And, according to the record, Mr. Leighton also disagreed with Mr. King regarding the accounting system of the Power Commission and expressed himself as believing that it was “so cumbersome that it is unworkable.” And it seems that the secretary of the Commission, Mr. Bonner, had asked Mr. Leighton of the utility companies to express his views before Mr. Russell. [Pt. 17, pp. 13-15.]
So it appears from the record that there was a controversy on between the representatives of the utilities and at least some of the employees of the Federal Power Commission. The controversy had to do with the matter of licenses to be granted to the utilities and, of course, the question of valuation and methods of determining valuations was involved. [Idem, p. 13.] A so-called mysterious memoranda, the authorship of which the Commission could not trace, had considerable to say regarding these very matters. “We were not so fortunate,” this mysterious memoranda says, “in the appointment of the chief accountant (of the Federal Power Commission), Mr. William V. King.” And then there follows a discussion of the methods of accounting which corresponds very largely to the thought expressed by the witnesses who appeared before the Commission. The utilities did not like the methods of accounting, and especially the method of determining valuation that was followed by the Commission. This much the record shows. And this the “mysterious memorandum” made clear.
The mysterious memorandum indicated that the utility companies had taken this matter up with the United States Chamber of Commerce, urging that this accounting work “could be better done by the Departments of War, Interior, and Agriculture than by the Commission’s staff: directly. . . . “At least, they will be removed from the direct supervision of Mr. King:”
Now, whether this memorandum was produced by any one connected with the utility companies or not, which, as stated above, they most vigorously denied, the fact remains that there was a difference of opinion between the utilities and such men as Messrs. King and Russell regarding the methods of accounting. Later on, on December 23, 1930, both Mr. William V. King and Charles A. Russell, employees of the Federal Power Commission, were summarily dismissed by the new Commission without any notice being given and without any charges being preferred. Technically, the jobs became vacant when the new Commission was organized but all of the other employees of the old Commission were retained. Only Messrs. Russell and King were dismissed.
So, while, as Commissioner McCulloch said finally, “the mystery” about this memorandum “has not been solved,” [Pt. 17, p. 16.] there is sufficient evidence in the record to show that the utilities had been active and aggressive in seeking to influence the Federal Power Commission and its methods of accounting and valuation.
Political Activities in Congress
Naturally, one of the chief objectives of the political activities of the utilities would be to promote in the United States Congress such measures as would be favorable to them and to prevent measures that they regarded as hostile to their interests. Elsewhere we have told at some length of the efforts of the utilities to prevent the passage of the Swing-Johnson bill in Congress providing for the development of the Boulder Canyon project in the Southwest. [Pt. 22, p. 439.] Similarly, we have described at length at different points the efforts of the utilities to prevent the passage of the Norris bill providing for the development of the great Muscle Shoals project.
Frequently throughout the record incidents occur of the efforts of the utilities to influence federal legislation.
In the field of national politics perhaps the most noted instance of the activities of the utility corporations was that of the Insull interests in Chicago and Illinois in their efforts to elect Frank Smith, who was at that time Chairman of the Commerce Commission of the State, which was the Illinois Regulatory Commission, to the United States Senate. Reference has been made to this matter previously.
In Pennsylvania the case of the election of William S. Vare is mentioned in the records and referred to by Gifford Pinchot as one of the serious corrupting influences in that state. “We are ruled by money,” says Governor Pinchot in this connection, “and by money I mean Mellon:” [Exh. Pt. 3, pp. 411-12.]
A striking example of the keen and active interest of the utility corporations in national legislation appears in connection with their action when the Walsh Resolution, providing for the present investigation, came up for hearing before the committees of Congress. Early in October, 1927, Josiah T. Newcomb, Counsel of the Joint Committee of the National Utility Association, sent out telegrams from Washington to representatives of the power companies quite widely throughout the country, urging them to be prepared “to discuss Walsh Resolution matter at meeting of full law committee, including Chicago group, at New York October 19.” From the record it would appear that efforts were made to gather the leading men of the entire industry in preparation for the work of meeting and counteracting the efforts to have the Walsh Resolution passed or at least in protecting their interests in the matter. The activities of the joint committee of the utility companies from that time forward, in connection with the resolution providing for the investigation, have been fully recounted in the previous chapters.
It is not without significance that men who have been long known as opponents of public ownership, and active in support of the views and the program of the private utilities have been elevated to high office in the civic life of the country. Most notable in this respect is the present President of the United States, Herbert Hoover, whose speeches have been reprinted by the hundreds of thousands and distributed throughout the country by the utility corporations. One of these addresses alone was printed in pamphlet form and $5,000 paid for copies for distribution. [Pt. 7, p. 95.] Other addresses and references to Mr. Hoover’s utterances have been given widespread publicity throughout the country by the utility corporations.
Similarly, former President Coolidge is often quoted by the utility organizations. One of his utterances is sent out under the caption “Coolidge Denounces Government Ownership.” [Exh. Pt. 3, pp. 348, 330.] A longer statement along the same lines is published from Mr. Coolidge against the Boulder Canyon project. [Idem, p. 454.]
It is also a notable fact that Andrew Mellon, one of the recognized leaders in one of the greatest and most powerful utility groups in the country, has for many years occupied a very important position in the President’s Cabinet. He is quoted in the record as saying that there were in the country $10,000,000,000 Of tax exempt securities, which was one of the matters in which the utilities were especially interested. [Exh. Pt. 3, p. 486.] According to Governor Pinchot, Mr. Mellon supported Senator William S. Vare in his efforts to secure a seat in the United States Senate. [Idem, p. 412.]
Similarly, men who have been active in the support of the program and policies of the public utility corporations have occupied prominent positions in some of the states. Notable among these are Albert C. Ritchie, Governor of Maryland, whose speech on “Electricity and Politics” delivered at the convention of the National Electric Light Association in 1927 was published by the utilities and appears as one of their regular propaganda articles. [Exh. Pt. 3, pp. 561, 569.] Five thousand of these copies of Governor Ritchie’s speech were ordered at one time; [Exh. Pt. 1, p. 409.] and they appear frequently in the list of regular publications of the utilities organizations. [Exh. Pts. 10-16, p. 369; Exh. Pt. 4, p. 127.]
And, finally, when the Congress of the United States acted contrary to the advice and urgent demands of the utility corporations, as in the case of the Swing-Johnson Bill with reference to the Boulder Canyon, and the Norris Bill with regard to Muscle Shoals, the spokesman of the utility corporations spoke contemptuously of that body. “Since When a Sacred Cow?” is the sub-title of an address by Ernest Greenwood on “Panning Public Utilities.” In this article he says:
“When a man is elected to Congress, does he become some sort of a sacred cow whose opinions are sacrosanct? Since when has it become a crime for others to disagree with senators and congressmen and try to protect their properties or the properties of those who have entrusted their savings to them, from unthinking, stupid, and even vicious attacks? … Of course, the periodic attacks such as those of Senators Norris and Walsh are great nuisances, but they do not constitute any great menace.” [Exh. Pt. 3, pp. 668-69.]
Summary and Conclusion
Power the Key Issue in America
Representatives of the utility corporations, as well as others, seem to feel that the question of the ownership, control, and operation of the public utilities of the country constitutes “the key issue in America:”
Henry Swift Ives, Secretary of the Casualty Information Clearing House, expresses this idea in an address prepared for the National Electric Light Association, of which 25,000 copies were printed. He says:
“The key issue in America today is whether the American people desire to preserve the institution of individual rights in property or substitute therefor community ownership supervised by a socialist oligarchy. This country can not exist half socialist and half free any more than it could have existed half slave and half free.” [Exh. Pt. 1, p. 411.]
An editorial from the Public Ledger of Philadelphia of Saturday, November 26, 1927, quoted in the record, says:
“There is looming over both parties the shadow of an entirely new issue, which may explain the obvious agitation and energy of leading strategists on both sides. That issue is power.
“Ride in a trolley car to the movies, stop for a light supper after the show, return home and switch on the radio, pick about in the family refrigerator on your way to bed, pull the shades down all the way to shut out the half-lights reflected from the towering electric signs that rise higher and higher in every city and you will have experienced at every turn a fresh contact with power. Meals are being electrically cooked. Disease is being cured by electricity. Important railroads will sooner or later be electrified. They will follow the example, of almost all other major industries. We are entertained electrically at the movies, and we do most of our talking by electricity, since it is only over the telephones that Americans appear to talk at length or seriously about anything. The organization and expansion of electric utility services is the greatest economic, financial and social phenomenon of this decade. In the present year investors have put far more money into gas and electric corporations than was ever poured in the same length of time into any other industry. Yet, in the view of experts, the development of utilities of this kind has just begun. Gas is probably destined to take the place of coal, and in the not far distant future all the labor of the farms will be simplified and quickened by an abundance of cheap electric current.
Already the great sources of future electric power are being hastily grouped in units destined to be brought together. In the case of power, however, the great natural and state-owned water power sites enter into the calculation. Technicians and organizers and financiers hold, of course, that the organization of superpower should proceed scientifically under private ownership and state control. But Governor Smith, like ex-Governor Pinchot and Senator Norris, has been agitating for a kind of socialization of water power sources and for closer and closer regulation of all plans looking to poolings of other facilities. Governor Smith, in the course of his experience with water power plans in New York State, has evolved experimental schemes of public ownership which run counter to most of those which advocates of private initiative believe in. It is only reasonable to suppose that he would seek to apply his theories to national schemes of water power if he were by any chance to be elected to the presidency.
Meanwhile, the expansion and merger schemes of the great privately owned utilities become more and more stupendous. There have been complaints in Washington of “over-financing” in some quarters. This allegation and rumors that small and poor utilities companies have been sometimes bought at low figures and sold at high ones to rich utilities companies may lead to outcries in Congress before the year is out. A group in Congress will advocate what might be called general political control of the vast and swiftly growing power industry. [Exh. Pt. 3, p. 329.]
Paul S. Clapp, Managing Director of the National Electric Light Association, points out that “there are a number of reasons why our industry has become the focal point of public attention. Among these are our increased size and purported prosperity, the increased importance of electrical service in the economic and social life of the people, misapprehension as to cost and quantity of water power, and particularly because this is a political year with all aspirants for high political office sparring for political positions.” [Exh. Pt. 3, p. 573.] Mr. Clapp then refers to the Walsh resolution, regulatory aspects of interstate power, activities of Norris and Pinchot, and Mississippi flood control, the essentials of Boulder Dam, and the Muscle Shoals problem as elements of the key issue before the people. .
“Our review of the findings of the Federal Trade Commission confirms this view of the situation. We may summarize these findings briefly as follows:
“(1) There has been developed throughout the United States in recent years the greatest organization of utility interests that has ever before appeared in the history of this country.
“(2) This organization of the utility corporations, while centering chiefly in the electrical field, has reached out and brought into its affiliations the representatives of all the more important and powerful corporations of the country, including banking and investment concerns, insurance companies, railroads, telegraph and telephones, etc., so that we have presented a more solidly united force of the great corporate interests of the country than ever before.
“(3) This organization of utility corporations, centering as it does in the electric light and power industry, deals with the most vital and strategic, economic and industrial interest of the country, one that is absolutely fundamental to all other phases of industrial, commercial, agricultural, and domestic life of the people.
“(4) The financial structure of the utility corporations within this group is such as to facilitate in a great number of different ways the concentration of ownership and control, so that, although there may be no single individual, organization or group of corporations that control the entire field, the tendency in that direction is very strong and moving with the irresistible force of economic determinism.
“(5) Driven by the economic forces struggling for control and domination, there have arisen new methods such as the holding company, the inflation of capital accounts by revaluations, and in numerable other devices heretofore little known or understood, with powers and possibilities almost beyond the comprehension of the ordinary citizen.
“(6) In order to justify the inevitable processes of concentration and control these corporations have been driven to a systematic utilization of every known method of influencing and molding public opinion so that their control has been extended in the most subtle and yet the most effective manner into the schools, colleges, and universities of the country, the press, the civic organizations of all kinds, the platform, the radio, the screen, and even the church.
“(7) Confronted by the existence of a very considerable degree of public ownership and control of local utilities, including especially water works and electric light and power plants, and a more or less determined effort to protect and promote such developments, the utilities have been drawn into open conflict with the municipalities and with state and federal forces, a conflict that is rapidly developing into a struggle of momentous proportions.
(8) In this struggle the utility corporations have felt that it was absolutely necessary, if they were to succeed, that they should enter and control the political forces of the local, state, and federal governments, and are, therefore, found active and aggressive in the political life of the people throughout the country.”
From all of which it would seem that the American people are confronted today and in the years immediately before us with a problem of greater magnitude and deeper significance, and with greater possibilities for good and ill than has ever before confronted this people. Moreover, the problem reaches beyond the confines of the local community into the state and nation, and then, reaching out beyond the national borders, has its international complications as well. For the economic and financial forces that seek to control and exploit the utility resources of the homeland are driven by the necessity of finding additional fields for investment and exploitation to enter foreign nations and already have their organizations and affiliations for such development. Thus the problem becomes international, as well as local, state, and national and its solution involves international problems as well as those of a strictly local and national nature.