be that men invest in companies to make a profit; but that is opposite from the theory of service.

Mr. EGAN. The fallacy, if I may be permitted

Senator BONE. There is a fallacy there from the standpoint of private operating companies, I know.

Mr. EGAN. The fallacy lies in the fact that you are considering the possibility of paying off an immense funded debt by earnings that are very infrequent and come once in a long time only. By the time you have got up to the point where you could do that, your bonded debt would have increased so much that you never would catch up to it.

Senator BONE. I know the theory of maintenance of capital structure. I am aware of that.

Mr. EGAN. I have no objection at all to having rates in effect that would permit the amortization of bonded indebtedness; not the slightest.

Senator MINTON. Then, you would want to take care of a little bit of your depreciation?

Mr. EGAN. You would have to have a higher rate. You would have to collect more from the customers; and, as I pointed out when I was talking about municipal plants to the chairman, it would simply mean that you would be charging the present generation for the creation of something that, if it is maintained and goes on continuously, like these public-service corporations do, would be for the benefit of future generations.

The CHAIRMAN. It does not seem to me that the present generation is complaining very much about that. because we have been issuing bonds that will have to be paid for by the future generations. When they come due, provided they represent properties that have been maintained properly, it would be very proper to refund them with other bonds.

Senator BONE. Then, you project the debt indefinitely into the future?

Mr. EGAN. Yes, sir; as long as you have property.

Senator BONE. Into the infinite spaces of time, then, this debt is projected?

Mr. EGAN. Yes.

Senator BONE. Do you think that is a good theory for any business?

Mr. EGAN. I think it is, provided you have the property to back up these outstanding securities. If you follow the opposite plan which you have suggested, you would tie up an immense source of attractive investment for the people of this country.

Senator BONE. Mr. Egan, I do not want you to misunderstand me. I am not quarreling with that theory as a theory of private ownership and operation of utilities. You and I would never in the world quarrel about that. I simply disagree with the theory, but I car understand why you defend it, and I do not accuse you of any wrong attitude about the question. I know precisely why you do it. and there are lots of worth-while people in this country who whole heartedly agree with you, and they are not bad citizens because ther do. But I think it simply imposes a burden on society that ought not to be imposed.

The CHAIRMAN. Do you know of any small business man in this country who could conduct his business in that way and still continue to borrow money from any bank, when he used up his earnings in paying out salaries to himself or in riotous living, rather than paying off his debt to the bank? If that is the system under which we are going to live in the future, that is contrary to all the teaching that we have had in years gone by, because the one thing that was instilled into my mind was that you should pay your debts and should put aside enough money to pay off your debts and get out of debt. With your theory you are simply changing that philosophy. Of course, my New England training may have been wrong in that regard, but I still adhere to it.

Senator BONE. If that theory be correct, would it not be proper for us never to amortize our national debt, but just let it accumulate and carry the interest charges? You know what that would do to this country, in time, if we did not amortize our debt. If you did not pay the mortgage on your home, but left it for your great-great-grandchildren

Mr. EGAN. The trouble is, if we start to discuss these things we get so far afield that it is hard to get back. The chairman asked me if I knew of any small-business man who could operate on that basis. No, sir; I do not. But I say no small manufacturer who can shut up shop and go away on a vacation or do anything he wants to with respect to his business is properly comparable with a public utiilty that is under public regulation, serving the public whether it will or no, and whose business cannot stop, whose securities are supervised, whose property must be maintained.

The CHAIRMAN. But let me call your attention to the fact that you will find that the thing that has got the railroads in bad at the present time is that very thing. I do not think you will find many railroad presidents in the United States but what will say to you today that they made a mistake and that they did not amortize their bonded indebtedness but have carried the debt structure; and today one of the troubles with the railroads is that they are carrying this tremendous burden of debt structure and they cannot pay it.

Mr. EGAN. That is because the debt structure represents too high a percentage of their property, sir.

The CHAIRMAN. Yes; that is one of the reasons.

Mr. EGAN. That is the big reason.

The CHAIRMAN. Yes; and that is what will happen with the utilities if you do not amortize them in the future.

Mr. EGAN. It all depends upon the percentage. I do not want to toot my own horn about my company too much, but we have deliberately refused to increase that percentage. I am talking about the percentage of bonds with respect to the value of our property. Today there is over two dollars' worth of property for every dollar of bonds that we have out. The preferred stock takes about 10 percent of the total investment, and the balance is in common stock that has been paid for in cash, and the cash put into the property. You just can't beat it. It is sound. It appeals to all investors or students of investment. If that bonded percentage were 80 percent, obviously they would say that the cushion behind the bonds was too small and that the bonded indebtedness was in danger, and the savings banks

would not qualify you as having a sufficient earning return on the bonds. You could not sell them. Your market would be hampered and you would go to pieces financially. That is just exactly what has happened to the railroads that have been overbonded. Take the Union Pacific, for instance. You do not hear anybody fussing about the bonds they have on their property. Take the Burlington. There is another sample, a grand one. The Pennsylvania Railroad is a good sample of it. All of those roads have gone through this depression. I could name a lot more of them. They have been paying dividends on their common stock with great regularity and still are. The ones that have gone on the financial rocks you know just as well as I do, sir.

The CHAIRMAN. Yes; but I still contend that the Pennsylvania, the Union Pacific, and the Burlington, if they had amortized their debts, would have been in a still better financial position than they are today.

Mr. EGAN. If they had amortized their debts they would not have been able to pay what they did pay in dividends on their stocks. The CHAIRMAN. No; that is exactly it.

Mr. EGAN. And if they had not paid dividends on their stock the securities ahead of them would not have been so popular, and they could not have sold any more common stock. Nobody would have bought it.

The CHAIRMAN. I did not intend to get you off on this.

Mr. EGAN. I was railroad born and bred, sir.

Senator BONE. Is the Keokuk Dam in your set-up?

Mr. EGAN. Yes, sir.

Senator BONE. Can you tell us anything about the cost of it and how its cost was carried into your financial structure?

Mr. EGAN. It was carried into our financial structure when we bought it. We paid $12,000,000 for the common stock of that company.

Senator MINTON. You say it cost $2,000,000 to build it?

Mr. EGAN. To build a lock that is used by the boats, out of the cost of that dam.

Senator MINTON. I misunderstood you, then.

Mr. EGAN. That is the way we went into it. It has been a good purchase. It has resulted in more efficient operation, lower rates, and my company has been satisfied with the return it gets. The current that comes out of the Mississippi River power plant at Keokuk is sold, on the average, for 5 mills a kilowatt-hour.

Senator BONE. Where is the rest of the stock or securities of that company? You merely own the common stock.

Mr. EGAN. There are 160,000 shares that I know of. There are about 500 shares that we cannot find.

Senator BONE. Where are the rest of the securities?

Mr. EGAN. The preferred stock, the debentures, and the bonds, are owned over a vast area, largely in the East.

Senator BONE. Will you tell us what the dam cost?

Mr. EGAN. I cannot tell you that exactly, but I think, on the basis of the figures that have been dug out-that was long before we went into it-I think the whole thing cost about 27 or 28 million dollars, as it was originally put up.

The CHAIRMAN. Did the Mississippi River Power Co. own the Keokuk Dam?

Mr. EGAN. It does own it.

The CHAIRMAN. Here is a statement that was also furnished with reference to that

Mr. EGAN (interposing). I am perfectly familiar with what it is going to say.

The CHAIRMAN (reading):

One of the properties which the North American Co. purchased and sold to its subsidiary, Union Electric Light & Power Co., was the Mississippi River Power Co.

Mr. EGAN. They bought it because we asked them to buy it.
The CHAIRMAN (continuing reading):

which owned a large hydroelectric property known as the Keokuk Dam. This property had been built by unaffiliated interests about 1913. According to the Federal Trade report, it was grossly overcapitalized and the total cost of the property as of July 1, 1914, recorded at $44,718,169.42, contained discounts, common-stock bonus, and commissions, amounting to $21,909,500. The entire issue of common stock with a par value of $16,000,000 was issued as a bonus to subscribers for purchasing other securities, and represented no actual value paid into the company. At the time of organization in 1913, North American Co. received $1,760,000 par value of this common stock from the Mississippi River Power Co. as a commission for causing its subsidiary, the Mississippi River Power Distributing Co., to execute a contract to take power from the project. Additional shares of stock were acquired up to December 31, 1925, at a cost of $862,063.82. These additional shares, together with those received as commission, were sold to Union Electric Light & Power Co. at cost plus carrying charges or a total of $952,909.53. No dividends had been paid by the Mississippi River Power Co. until 1926. After that time the Union Electric Light & Power Co. received these dividends and over a 5-year period received a total of $264,000 as dividends on the 17,600 shares of common stock which it and the North American Co, had received at no cost to it.

Senator BONE. In your answer will you indicate, if you know, whether dividends have been paid on this block of $16,000,000 of common?

Mr. EGAN. Not a dollar until after we bought it.

Senator BONE. Is there any question in your mind as to whether it was bonus stock and represented no investment?

Mr. EGAN. No. If that stock had not been paid out and given to the purchasers of the other securities of that company, there never would have been any construction.

Senator BONE. But the picture now is that the 16 millions of common which represented no investment has been counted as an investment; those phantom dollars have been made real?

Mr. EGAN. That is right.

Senator BONE. That is sort of an inflation, is it not?

Mr. EGAN. It goes on in all business. This was done before there was any regulation. This deal was made not in 1913; it was made in 1908.

Senator BONE. Do you think that regulation ought to perpetuate a thing like that and make future generations pay on $16,000,000 of wind?

Mr. EGAN. Wait a minute; now, sir

Senator BONE. If that is not a fair question

Mr. EGAN. It is something more than that, Senator.
Senator BONE. You think it has any value now?

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Mr. EGAN. Absolutely.

Senator BONE. But the value was not represented by investment? Mr. EGAN. It has been represented by investment since.

Senator BONE. Should not the public have to pay only on what at least represents a prudent investment?

Mr. EGAN. That is all it was. The public would never have received the benefits out of that plant that it has been receiving for over 20 years unless that financing had been carried on the way it I had no hand in it whatever. I am the innocent purchaser that went along.

Senator BONE. I am merely discussing the fact.

Mr. EGAN. I would have been proud to have done that job the way it was done. It was a grand feat. That is what it was. Senator MINTON. Now, your company has accumulated all of that stock that the Senator was talking about?

Mr. EGAN. That is right.

Senator MINTON. And that stock was given out as a bonus to the people that furnished the money to originally build it?

Mr. EGAN. Yes.

Senator MINTON. How did you go about accumulating all that stock?

Mr. EGAN. We began over a period of years. I went to the North American Co. and suggested that it would be a fine thing if we could get that stock of the Mississippi River Power Co.; and the reason it was a fine thing was an operating reason.

It was not that we just wanted to own a plant out at Keokuk. About half of the output of the plant at Keokuk is sold in the St. Louis area. The contract for sale is an enormous document. It covers the sale of current for a period of 99 years, and it covers all kinds of operating details. As long as those two companies were separate and not under common ownership there was a constant friction between the operating departments as to how the contract should be interpreted. Some of them were getting around it by the creation of what we call "operating agreements. The contract itself was filed under the mortgage. It is a part of the property of that company. The bonds could not have been sold unless that contract had been filed under the mortgage.

Senator MINTON. What I am interested in is how you accumulated all this stock.

Mr. EGAN. I am coming to that. The result was that I wanted. to have it; I wanted it badly; and we started in, and the North American had its 17,600 shares that you mentioned with a face. value of $1.760,000. At the time the North American got them, they did not have the value of waste paper; they were not worth a thing. The stock was a drug on the market for years. As the company's business grew. they became more and more valuable. They started to buy what they could in the open market. I have forgotten the exact details of it, but when we finally consummated it their ownership had become so big that they were able to go to the people who were then in charge of the operations of the company and make a good trade with them for the stock they held. That is the way it was done. We did not get it all at that time. We were picking it up in driblets over the years.