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economic atavism. No logic has been advanced to convince a yet hopeful people that the end of the electric era is at hand, that there doesn't remain a large opportunity for useful service by the public utility holding company. The case against the holding company is not convincing of the proposition that it is necessary to deny ourselves the advantages of this form of business organization in order to avoid its abuse.
CONTRIBUTIONS OF HOLDING COMPANIES TOWARD DEVELOPING THE USE OF
ELECTRICITY During the past dozen years when utility holding companies became major factors, twice as much new capital was invested in the power industry as in the preceding 40 years.
Twice as many miles of transmission lines were built as in the preceding 40 years, and domestic customers increased their use of electricity twice as fast as they had done previously.
Statement by Daniel Starch Gentlemen, I appreciate the opportunity of presenting this statement to you. I wish to use this opportunity to present to you some facts with regard to what has been done by holding company managements to increase the use of electricity throughout the length and breadth of this land.
May I state by way of introduction that I was born and brought up on a farm in Wisconsin, that I largely worked my way through college and that I am a graduate of the University of Iowa. Many of my relatives are living on farms in the Middle West. I am interested in the proposed legislation because of the effect it may have upon the electrification of farms and the standard of living in this country. For many years I have been engaged in commercial research work as a consultant. My organization and I have conducted many researches and investigations in the marketing, distribution, and advertising of many different products, including studies on electrical appliances and the use of electricity. For some 8 years I was director of research of the American Association of Advertising Agencies, during which time I made extensive studies of the circulations of many of the larger newspapers and magazines in the United States.
Because of my interest in rural life and in the compilation of facts, I have prepared some data which I wish to present.
Much of the time and attention of this committee has been taken up in criticism and in pointing out shortcomings in the industry. No fair-minded person would deny that there have been shortcomings and mistakes. What business or what field of human activity, even including the making of laws, is there in which mistakes have not been made? Such mistakes as have occurred, have resulted largely from errors of judgment rather than from malicious intent. Furthermore, they have been mistakes which are now evident from hindsight, but which were not evident even to the best and most conscientious minds through foresight before the events. Who is not wiser in hindsight than in foresight?
I wish to present to you some facts, not opinions or generalities, but facts concerning the tremendous increase in the use of electricity far greater through the energetic efforts of holding company management than would otherwise have been attained in the same period of time. It is my firm belief that without such management, the necessary capital required for the development of the industry could not have been obtained. I have no interest in discussing this problem in relation to the pending legislation other than on its merits.
WHAT THE HOLDING COMPANY MEANS TO CAPE COD
I wish to present first of all, some concrete facts which I know from my own knowledge and observation. On August 10, 1923, occurred President Harding's funeral. It was a Friday and a national day of mourning by proclamation of President Coolidge. I was then living in Boston. After the memorial services were over, my family and I motored to Cape Cod for the week-end. When we arrived at Falmouth in the evening, we found the town pitch dark-not a light anywhere. Electric service which had been inaugurated 34 years before had broken down. We went to the office of the electric company. There they had a few candles lighted. We drove to a hotel-still there was darkness. After an hour or so of darkness, electric lights came on dimly. Soon they failed again so that we had to eat our dinner by candlelight. Such interruptions had been occurring frequently.
Electric service was so poor that customers never could be sure of lights or sure of proper voltage to operate toasters or flatirons. Whenever complaints from customers became too numerous and vociferous, the management pre viously in charge would move a transformer into that area to bolster up the service. Pretty soon, the same transformer would be moved to another area to quiet complaints in that section. The management simply could not raise the funds with which to buy the necessary equipment, maintain its facilities, and improve the service.
$3,300,000 SECURED THROUGH THE HOLDING COMPANY TO IMPROVE SERVICE ON CAPE
About this time, the Associated System acquired the management of the Cape & Vineyard Electric Co. The first thing this management did was to raise money to build an additional 40-mile transmission line to guard against interruptions in the service.
Through the greater credit and managerial ability of the holding company, the money was raised and the lines and generating facilities improved. In the course of the next several years, some $3,300,000 were expended in improving and extending the facilities for service in this area, all of which was secured through the holding company. Today, the service is on a par with that of any good-sized city. Not only was the service improved, but new lines were built out into the other communities in the area which had no service before, so that today three times as many people are served as in 1923, when the Associated System acquired the management.
The following editorial appeared in the March 23, 1935, issue of the Yarmouth, Mass. Register:
'Apropos of the President's strong opposition to the electric holding companies and his determination to exterminate them by legislation, we of Cape Cod must acknowledge our debt to them for benefits received. Our electric service some years ago was poor. A storm would usually mean the stopping of machinery, loss of light and power for pumping water. It was the entrance in the field of the Associated Gas & Electric System, a holding company backed by more capital than could be raised locally, that has given us the present excellent service."
I cite this intance which I have known and observed personally as an example of what has been done under holding-company operation in scores, yes, hundreds and thousands of communities in the United States.
MOST CAPABLE EXECUTIVEB MADE AVAILABLE TO WHOLE GROUP What has happened with regard to personnel when a holding company acquired local companies or groups of companies? It proceeded to select the most capable men in these operating companies and put them at the service of the entire group. In the case of the Associated System, Mr. R. D. Jennison, one of the most capable utility operators in the country, connected with one of the companies acquired by the system, was brought into the holding company management. Mr. E. M. Gilbert, an engineer, recognized throughout the world for his ability and accomplishment, likewise was made available to all the Associated System properties. Under his supervision was built, 3 or 4 years ago, what engineers regarded, up to that time, as one of the two most efficient electric-generating plants in the world. Mr. L. D. West, widely expericened in developing the use of electricity among industries, was placed in charge of new business development for the entire system. And so on, I could name a score of men whose services became available to the entire system.
BEST SERVICE AT THE LOWEST COST COMMENSURATE WITH SOUND BUSINESS
Now, let me say a word about sincerity of purpose. I have heard Mr. J. I. Mange, head of the Associated System, say repeatedly, at meetings of general managers, that they have only one purpose and that is to provide the best service at the lowest cost commensurate with sound business. When anyone says, as has been said before this committee, that holding companies exist only for the purpose of making money through security manipulation, he is speaking generalities without a basis of facts. Let us grant that utility officials are not pure altruists, that they are motivated by self-interest, just as lawyers, doctors, business men, professors, legislators, and public officials are motivated by self-interest. But enlightened self-interest dictates that furnishing the best service at the lowest reasonable cost is nothing more than sound business.
What are the concrete facts with regard to the confidence of customers in the companies which serve them? To what extent are the customers satisfied with the electric service they are receiving, and what is the value in their estimation in relation to other services and commodities which they purchase? These questions may be raised in view of the comment made that the utility business has lost the confidence of its customers and the good will of the public. Just about the time when the utility question was being made a political issue, a careful survey was made of some 4,000 customers of various income and occupational, levels picked at random in 79 communities of 4 eastern States. This survey was made through personal calls by qualified individuals. The results of this survey, I believe, are significant because they were obtained before power had assumed such proportions as a political issue as it holds today. It was found that 92 percent of these customers had had no trouble with their electric service at any time during the 2 preceding years, 94 percent had had no complaints with bills and charges, and that in their opinion the value received per dollar expended for electricity was second only to water service, among a total of nine different types of services for which the average family spends money. It should be added that since this survey was made, electric service is cheaper and probably better.
CHARTS SHOW HOLDING COMPANY LEADERSHIP IN EXTENDING USE OF ELECTRICITY
Now let us see broadly but specifically, what has been accomplished under holding company management, in extending and developing the use of electricity by more customers and more ' use by existing customers. The formation of holding company groups into large systems occurred chiefly in the decade from 1920 to 1930. Departments and personnel for developing new business did not get under way until about the middle of that period. That was the case in the Associated System; it was also the case in practically every other large utility system.
What has actually happened? Let us look at the following charts.
Chart no. 1 shows that the capital invested in the electric light and power industry was approximately $4,817,000,000 in 1922, and $12,900,000,000 in 1934. In other words, the amount of additional investment during the last 12 years was approximately twice as large as the total investment during the preceding 40 years. It was chiefly through the efforts of holding companies that
this large amount of capital becamse available to the industry and is basically responsible for the great growth which the industry was able to make during these last years. (Source of data: Electrical World.)
Chart no. 2 shows that the number of miles of transmission line increased from 86,290 in 1923, to 208,097 in 1933. This is a tremendously rapid increase during a period of 10 years as compared with the total mileage built since the beginning of the industry in 1882 to 1923. As just stated, the development of holding companies got under way about the early and middle part of the 20's.
Comparable figures are not available prior to 1923. (Source of data: Edison Electric Institute and Electrical World.)
Chart no. 3 shows that the domestic use of electricity by residential customers in the United States as a whole increased far more rapidly after the middle of the last decade than it did before. Before 1925 residential use increased 11 kilowatt-hours a year; after 1925 under the stimulus of holding company manage ment it increased 26 kilowatt-hours a year. If 1913 is taken as 100, domestic use increased to 150 by 1925 and to 239 by 1934a rate more than twice as fast after 1925 as prior to that date. (Source of data: Edison Electric Institute.)