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“Senator Couzens. So they got a profit two ways?
“Colonel CHANTLAND. Yes. They would get it one place or the other.
“Senator COUZENS. They got it both ways, did they not?

“Colonel CHANTLAND. It would all depend how they marked it, up or down" (pp. 116–117).

The following testimony from the Federal Trade Commission's record shows that Colonel Chantland's testimony relating to this Peabody Coal Co. was unfair: (The Mr. Bass referred to was the examiner of the Federal Trade Commission who had investigated this company.)

“Mr. ChanTLAND. So the record may show we have not overlooked it, Mr. Bass, you will recall that when this inquiry was started intimation had come to us, which we supplied to you, that as a result of this Peabody ownership and the contracts, it was thought that the Peabody Coal Co. was billing, and the utilities interests were permitting coal to be billed to them at a dollar or two per ton over cost, so as to make the utility costs high; you will recall that fact?

Mr. Bass. Yes.
Mr. CHANTLAND. What did you find on that point?

Mr. Bass. I did not find anything to that effect. If such an unusually high price was paid, it might have been for a specially prepared gas coal, and that constitutes a very small percentage. The highest price paid by any of the utilities on the cost-plus contract was not over $2 a ton.”

In the report on the Peabody Coal Co. in volume 63 at page 247, exhibit no. 5811, about which the above questions were asked, the price to be paid for coal supplied by the Peabody Coal Co. is set out in one of their contracts as follows (p. 249):

“The prices to be paid by the utilities company for coal to be shipped hereunder during each contract year shall be mutually agreed upon annually by the parties hereto within 20 days of giving of annual notices hereunder and shall be in line with the price at which approximately the same tonnage of coal of similar character to be shipped under like conditions and at the same rate per day during the period that shipments are to be made, can be purchased on annual contract basis at the time that the utilities company serves notice on the coal company of the amount of coal of the various grades and sizes which it will require hereunder, unless the utilities company advises the coal company at the time of giving such notice that it prefers to pay the open-market prices at the time such shipments are to be made, in which event the open-market prices shall be charged, said open-market prices to be agreed to by the parties weekly in advance of shipments" (Federal Trade Commission, vol. 65, p. 7, 252). Respectfully submitted.

Vice President and Managing Director,

Edison Electric Institute. APRIL 29, 1935.

STATEMENT OF S. R. INCH, PRESIDENT ELECTRIC BOND & SHARE Co. Mr. Chairman and members of the committee, my name is S. R. Inch. I am president of Electric Bond & Share Co. and I present this statement to you on behalf of that group.

QUALIFICATIONS It may be in order for me to state briefly my qualifications. My background and experience is that of a public-utility operator of electric, gas, water, steamheat, and street-railway properties in this country and abroad.

Thirty-five years ago I was a shift operator at one of this country's early hydroelectric plants located near Butte, Mont., which later became a part of what is now the Montana Power Co. I remained in the Intermountain West for 24 years during all of which time I was engaged in various capacities in publieutility work.

In 1913 I joined the so-called "Bond & Share group” as general superintendent of the Utah Power & Light Co. In 1918 I became its vice president and general manager. Early in 1924 I came to New York to join the service organization of the Electric Bond & Share Co. The next 5 years were spent in the fiela in connection with our supervision service, first, of domestic and later of foreign operating companies. In 1929 I returned to New York to take over the general direction of our supervision of domestic operating companies. In 1933 I was elected a director and made president of the company.


In this capacity I represent a group of some 800,000 investors and approximately 30,000 employees who respectively have supplied the money for, and operate, the properties which provide public-utility service to a total of nearly 10,000,000 people in this country. Generally speaking, it may be said that our group represents about 10 percent of the investors and employees in our industry and something less than 8 percent of the population served.


There are some structural differences between Senate bill 1725 and House bill 5123 although they both are known to the public as the “Wheeler-Rayburn holding company bill." The principal differences are that the Senate bill is minus title III of the House bill, which puts under the control of the Federal Trade Commission the minutest details of the business of natural-gas operating companies, and that title II of the Senate bill, unlike the corresponding part of the House bill, does not place in the hands of the Federal Power Commission the regulation of retail rates for local electric service. However, the Senate bill through title I affects the natural-gas industry in the same manner as it does the electric power and light industry.

Where without sacrifice of clarity I could do so, the facts which I desire to present therefore refer to both industries. Where in the interest of simplicity I have used electric data only, it can usually be properly assumed that naturalgas figures, it included, would emphasize the importance of the information submitted.


Legislation which may, and I think as now proposed inevitably will, destroy tremendous values of sound investment, dislocate two major industries and engender new fears as to the future of private capital in all lines of business in this country, should be approached on a factual basis.

Here you are required to consider whether the electric and gas industries as now constituted have done and are doing a good job in providing adequate and cheap service to this nation.

Here you have to consider the future of industries representing an investment of more than 15 billions of dollars which has been provided in good faith by some 10 millions of the citizens of this country.

These are questions too fundamental to be approached on the basis of mere emotional appeal, either as to what some of the proponents of this measure have termed our "indispensable widows and orphans" or as to their own horrific bogeys of crafty capitalists and buccaneering bankers.

It is therefore upon a strictly factual basis that I wish very briefly to present three main problems for your consideration.

First. What are these industries, what part have they served, do they serve and can they serve in our national life? Should they be nationalized, or can they be used, if accorded Government cooperation instead of Government competition, as a major channel in the putting of private taxpaying capital to work again and consequently as a means of helping to bring about that economic recovery which is our one great national need today?

Second. Are the history, accomplishments, and present position of the Electric Bond & Share group as to these industries such as to warrant, at your hands, the immediate dismemberment and ultimate destruction of a corporate group which is 100 percent publicly owned and the principal function of which, as I shall hope to prove, has been to take metropolitan service at less than metropolitan rates to small communities in sparsely settled territory?

Third. What will be the probable effects of this legislation, if enacted as now proposed, on investors, on service, on society and on recovery?


The necessity of presenting these complicated questions to you in such a way as to accomplish the maximum of brevity, clarity, and simplicity has led me to prepare a number of small charts to illustrate the points I desire to emphasize. These charts, a set of which accompanies this statement, present in graphic form the results of studies made under my direction for the purpose of showing not only particular facts and groups of facts but also certain trends which seem to me to merit careful consideration.


It may be well to outline very briefly a few salient facts about the electrie and natural-gas industries so as to emphasize what I know must be very much in your minds, viz, the tremendous implications to the national well-being involved in this bill and the equally tremendous responsibility which is thus imposed upon you in your consideration of it.

Directly and indirectly these industries provide employment for at least 1,000,000 people and through wages alone furnish the support for many times that number.

No other industries have provided more stable employment during the depression years either as to number of persons employed or as to compensation paid and few, if any, others have maintained so high a yearly average wage.

Millions of investors have invested billions of dollars to make possible the useful public service which they provide for more than 100,000,000 people in this country.

They have done so good a job that America is the envy of the world as regards the quality, universality, and cheapness of its public utility services.

Directly and indirectly these two industries are estimated to provide our Federal, State, county, and municipal governments with taxes of nearly half : billion dollars a year.

If taxes be considered, no municipal, State, or Federal light and power system in this country including Seattle and Tacoma or in Canada, the home of the now financially decrepit Ontario hydro system, is providing electric service at rates which compare favorably with correspondingly situated private systems in this country.

Their business is in the main not monopolistic but highly competitive. Only as to residential lighting service representing less than one-sixth of the revenues of electric companies can the element of competition be properly considered absent.

It is both interesting and significant that these services are the smallest items of the family budget, that while the prices of all other items of household expenses are rapidly mounting the cost of these services is steadily decreasing.

These industries normally spend over $2,000,000,000 a year in wages and for the purchase of materials and supplies.

In 1930 they spent, at Government request, more than a billion dollars on construction alone, in an effort to help stem the depression.

Today, if accorded fair treatment and the cooperation instead of the competition of Government, they could be one of the leaders in the drive for business recovery.

I want to submit to you that the way back to prosperity is through the reestablishment of business confidence which will permit private, taxpaying capital to go to work again.

If this could be brought about, the next 5 years, instead of seeing the demoralization and destruction under this bill of these great industries as private enterprises, would see them again engaged in constructive expansion. The same 5 years instead of bringing about the ruin of millions of investors, would bring recovery to their investments and the restoration of their income, from which in turn, new taxes would accrue to Government.

The alternative is the expenditure of immense sums of public money to accomplish something private capital can do better, the further destruction of the sources of Government taxes out of which such public money must be raised and serviced, the imposition upon the people of a new social order under the guise of regulation and the wanton destruction of investors and investment alike.

I should like to illustrate these points by reference to charts 1 to 8, inclusive, in the folder you have before you.


Electric Bond & Share Co. was organized in 1905 by General Electric Co., which, however, for many years past has had no interest in our company, to take over and attempt to salvage public-utility securities accepted by the

manufacturing company in part payment for electrical apparatus from companies, locally owned and operated, which had been unable to make a success of their undertakings. From that day to this almost every situation that Electric Bond & Share Co. has gone into has been in response to the need for financial help.

A great many of the properties which it has made into sound and successful operating units it took out of receivership. In most other cases we were asked for help either because receivership threatened or because the financial needs of the properties had grown beyond the capacity of their owners, or the people of the local communities, to supply.

In this connection it may not be amiss to remark that the electric and naturalgas industries and in fact all growing public utilities require immense amounts of new capital. These amounts vary from $5 to $10 of new capital for each new dollar of annual gross earnings, so that the inability of local capitalists to provide the money needed for such enterprises is not remarkable.

ELECTRIC BOND & SHARE CO. NOT A “PAPER” COMPANY Electric Bond & Share Co. is not and never has been a "paper" company. It is not something of recent creation. It was not superimposed on operating companies as a device" for financial or corporate control. It is and always has been a working organization. It has from the beginning provided the initiative, done the planning, and found the money for the creation, development, and support of the group which bears its name.

The growth of our group has been not fortuitous but organic. This is the explanation of the relative simplicity of our corporate set-up as shown on chart 9. First came Electric Bond & Share Co., itself, in 1905. Its first undertaking was the assembling of the properties for and the formation and financing of the American Gas & Electric Co. In that company, we still hold a minority interest but we do not in any way supervise its operations nor have we ever done so. Its business and operations are, therefore, not included in such facts and figures as I may here present for your consideration.

Later, and from time to time as new operating properties were assembled by Electric Bond & Share Co. initiative and money, a holding company was organ, ized to hold their common stocks, thus making possible the sale of the bonds and preferred stocks of the operating subsidiaries on attractive terms to them and so providing a sound finncial set-up under which every company in the group is solvent today.

The Electric Bond & Share Co. plan has been developed on the idea that its associated holding companies are merely investment companies through which equity money could be raised for the financing of the operating subsidiaries.

These associated holding companies have no pay rolls, receive no fees, hold no outside investments, and serve no functions except the very important ones of providing the equity money for and the cash advances needed from time to time by their own operating subsidiaries.

The continuous financing necessary to the growth and development of operating companies is, contrary to popular opinion, a far more important factor in the public interest than is even the technical end of the business, important as that is, and as to all but the few companies operating in the largest cities, this financing can best be done, and in many cases can only be done, through holding companies. Under our plan we have sought safety for each holding company through diversity of investment risk in location and character of territory served and efficiency and economy of management through the supervisory organization of Electric Bond & Share Co.

The result is a simple corporate set-up which may be outlined as follows:

Local operating companies, regionally situated, locally operated, locally managed, subject to local regulatory authority and interconnected wherever economically and physically feasible with adjoining systems.

Central service organization, similarly subject to effective local regulation set up on a regionalized basis which provides the operating companies with many classes of necessary expert services of greater scope and at lower cost than could be provided by the operating companies themselves.

Holding companies, the function of which is to provide money for the creation, existence, and expansion of the operating utility systems. They, like all other financial institutions, are already subject to the jurisdiction of the Securities and Exchange Commission. Their "holdings” in the common stocks of their subsidiaries have been so selected as to offer the benefits of diversity of risk to those who invest in their securities.


The proof of the pudding is in the eating. After 30 years of operation, in spite of the recent years of depressed business conditions and notwithstanding increased taxes, subsidized Government competition and continued political attack, we are able to make the following statement:

“No operating company is in default of interest, sinking fund, or bond maturity, as to any obligation created while a member of our group.


"All but six are earning and paying preferred dividends on stocks held by the public, most of them in full.

"No operating company has any borrowings, other than funded debt, payable to anyone except its own holding company.

“No company is in default on taxes.

"Every company is meeting all service demands, maintaining first-class service and progressively reducing rates,

Only two companies in our group (both holding companies) owe money to any bank. In both cases, the debt was contracted to meet "depression" expenditures.

“Electric Bond & Share Co. and associated holding companies have today net cash resources of approximately $75,000,000, which have been held in reserve so that solvency may be maintained.”

Such a record could not have been obtained through over-capitalization and bad management, particularly when it is remembered that our companies operate principally in sparsely settled territory and in States whose prosperity depends mainly on agriculture or the heavy industries. Notwithstanding this record of accomplishment and in spite of a rising volume of business, the market prices of our securities are being progressively forced down by the uncertainties brought about by continued political attack, as is shown graphically in charts 11, 12, and 32. This in turn will make difficult the raising of the new capital (see chart 20) which otherwise could be expended by our companies for new construction.


No criticism has been directed against our group alleging poor service, inadequate facilities, failure to respond to legitimate demands for extensions, or lack of adequate financial resources. We have no up-stream loans or stock holdings between operating companies and their holding companies and no cross-stream loans or holdings. It is a matter of fixed policy with us not to engage in market operations as to any of the securities of our group. No individual or combination of individuals and no "insiders" control any company in our group. On the contrary our group is the perfect example of 100 percent public ownership as is indicated by chart 10.

We could enlarge the list to include exemption from every criticism save two. These are that so-called “write-ups" have inflated the rate bases and that service fees have inflated the expenses of operating subsidiaries and hence increased the cost of service to the rate-payers. We believe that neither of these statements is true.


Let us first take the now familiar charge of write-ups. While the Federal Trade Commission does not attempt to distinguish between them, there are, of course, write-ups and write-ups; legitimate and illegitimate ones. We believe those for which we have been criticized are of the legitimate kind. The following can be said for them:

(a) No write-up occurred except when new operating systems were being organized or at the time of some proper and necessary corporate reorganization requiring a determination of the value of corporate assets.

(b) The figure then placed on the books reflected an honest belief as to value at the time.

(c) Not only did no rate increase result from such appraisal but rate reductions invariably followed, in many cases immediately and in all cases at an early date.

(d) Total securities outstanding with the public are less than total book assets after deducting all so-called “write-ups."

In all fairness, I should state that the Federal Trade Commission has made it clear in the present investigation that book values are not determinative as to rates for service. The following statement is quoted from the record:

The Commission recognizes that the fair value of assets and liabilities may be much greater than the books of account disclose or that they may be less. The determination of fair value is one for which provision had been generally made under existing statutes by administrative and judicial authorities when such issue arises in particular cases. Some of the facts brought out in these hearings regarding the growth of capital assets and liabilities may have a bearing on questions of fair value, but, according to the law, they are not the only factors to be considered. They will be informative chiefly regarding the cost of investment and the extent of increases in book value over and above such cost. If the Senate had intended any such inquiry, i. e., as to values and appraisals to be made, it would have been a simple matter to express its wishes, as the Congress

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